California Cannabis Labor Law Update

Santa Clara, CA California is defending its cannabis labor peace agreement requirement before the Ninth Circuit in a lawsuit filed by Ctrl Alt Destroy, Inc.,a cannabis retail company. Ctrl Alt Destroy v. Elliott challenges whether the state can condition cannabis licenses on such agreements under California labor law or whether the requirement is preempted by federal labor law.

California Cannabis Labor Law Update At issue is a provision under California’s Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) that requires licensed cannabis operators to maintain a labor peace agreement (LPA) with a “bona fide” labor organization as a condition of doing business. The requirement has long been framed by state officials as a way to promote labor stability in a still-maturing industry. But opponents argue it crosses into federally preempted territory by dictating how employers and unions interact.

Ctrl Alt Destroy v. Elliott brought its complaint in 2024. Now before the U.S. Court of Appeals for the Ninth Circuit, it could shape how far states can go in regulating labor relations in federally illegal industries. Ctrl Alt Destroy filed its lawsuit after the state nullified the company’s labor peace agreement with a group it deemed “a sham organization designed to help cannabis retailers evade licensing requirements.”

State Defends LPA Requirement

According to Law360, California officials recently urged the Ninth Circuit to uphold dismissal of the retailer’s challenge, arguing that the LPA requirement neither conflicts with the National Labor Relations Act (NLRA) nor violates constitutional protections.

The state emphasized that Congress has historically allowed room for state-level regulation in areas tied to public health and safety—even in industries that remain illegal under federal law. According to the brief, the labor peace provision does not interfere with the NLRA’s balance between labor and management, nor does it restrict employers’ ability to engage in non-coercive speech about unionization.

At its core, a labor peace agreement is a contract in which an employer agrees to remain neutral during union organizing efforts, while the union agrees to refrain from disruptive tactics such as strikes, picketing, or boycotts. In California, maintaining such an agreement is not optional: failure to do so can jeopardize a cannabis license.

The “Unclean Hands” Detour

U.S. District Judge Todd W. Robinson in early 2025 dismissed the lawsuit, invoking the “unclean hands” doctrine. “Because it is a business which exists solely for the purpose of making money through repeated and ongoing violations of federal law, plaintiff comes before the court seeking equitable relief with unclean hands,” said Judge Robinson and reported Law360.

The doctrine generally bars a party from obtaining equitable relief if it has engaged in bad faith, misconduct, or inequitable conduct directly related to the claims at issue. It is not triggered by unrelated past wrongdoing, but by conduct tied to the subject of the lawsuit.

California, however, has argued that the district court misapplied the doctrine—suggesting the case should have been dismissed on other grounds, such as failure to state a claim, rather than on the premise that cannabis illegality alone bars judicial review.

The retailer, Ctrl Alt Destroy, has seized on that point in its appeal, arguing that California cannot simultaneously regulate and profit from cannabis while invoking its federal illegality to shield its policies from scrutiny.

Federal Preemption Dispute

The central legal question is whether California’s LPA requirement is preempted by the NLRA, which governs labor relations nationwide.

Before the Ninth Circuit, the dispute focuses on whether the state’s labor peace agreement mandate intrudes on areas reserved for federal law, particularly employer speech and union organizing rights. The retailer argues the requirement effectively compels neutrality and shifts the balance in organizing campaigns, while the state maintains it is a permissible licensing condition that does not interfere with federally protected activity.

According to the complaint, requiring employers to agree to neutrality—and potentially limiting their speech about unionization—conflicts with federal protections for employer expression and employee choice.

Support for that argument has emerged in other jurisdictions. A federal court in Oregon recently struck down a similar voter-approved measure requiring LPAs in the cannabis industry, finding it preempted because it restricted employer speech beyond what the NLRA permits.

Defining “Bona Fide” — and the Compliance Problem

Beyond constitutional concerns, the case highlights practical challenges with California’s LPA framework.

One flashpoint involves the state’s authority to determine whether a labor organization is “bona fide.” In this case, California regulators voided the retailer’s agreement with a union they deemed illegitimate, leaving the company at risk of losing its license unless it entered into a new agreement with an approved organization.

That ambiguity has created compliance headaches across the industry. Data cited in legal analyses suggests that only a fraction of California’s licensed cannabis businesses have LPAs on file, and enforcement has been inconsistent. This uneven application could complicate the state’s defense, particularly if courts view the requirement as both burdensome and unclear.