Nov. 2: Federal appeals court revives California cannabis retailer's challenge to state labor peace rule

A federal appeals court has revived a California cannabis retailer's lawsuit challenging the state rule that requires many licensed marijuana businesses to sign labor peace agreements with unions, ruling that a trial judge should not have thrown the case out simply because marijuana remains illegal under federal law.

In a memorandum filed Nov. 2, 2026, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit (Circuit Judges Paez, Owens and Sanchez) vacated the dismissal of Ctrl Alt Destroy, Inc. v. Elliott and sent the case back to the U.S. District Court for the Southern District of California. The defendants are Nicole Elliott, director of California's Department of Cannabis Control, and California Attorney General Rob Bonta, both sued in their official capacities. The International Brotherhood of Teamsters is listed in the appeal as a movant.

The ruling does not decide whether California's labor peace requirement is lawful. It reopens the challenge and tells the lower court to do a fuller analysis before deciding whether the retailer's claims can go forward.

What the court decided

The case turns on a legal doctrine called "unclean hands." The Ninth Circuit quoted its own 1957 description of the doctrine: "one who does not come into equity with clean hands, and keep them clean, must be denied all relief, whatever may have been the merits of his claim."

U.S. District Judge Todd W. Robinson dismissed the case after concluding that granting relief "would directly facilitate conduct which is clearly illegal under federal law," according to the appeals court's memorandum.

The panel said that was not enough. Under the circuit's 2015 decision in Northbay Wellness Group v. Beyries, courts must balance "the alleged wrongdoing of the plaintiff against that of the defendant" and weigh "the substance of the right asserted" against the conduct said to bar it. "The district court abused its discretion by not conducting the required balancing test and instead applying the doctrine simply because Plaintiff's business is illegal under federal law," the panel wrote. It added that in Northbay Wellness, the circuit had addressed "a nearly identical error concerning a marijuana dispensary."

According to the memorandum, both sides agreed on appeal that the district court had not completed the balancing analysis. In Northbay Wellness, the Ninth Circuit did that balancing itself. This time, it sent the question back, noting that both parties said more factual development could help.

The panel also pointed to open issues the lower court must now take up:

• California suggests that actions by the retailer "unrelated to the sale of cannabis" could also bring the unclean hands doctrine into play, an argument the district court did not consider.
• There is a dispute over whether California itself is barred from invoking the doctrine "because its own hands are unclean."
• The district court may address other pending motions, including California's motion to dismiss for failure to state a claim.

The panel directed the lower court to "consider Plaintiff's contention that California legalized and now facilitates, regulates, and profits from the exact activity it claims is unclean."

The memorandum is unpublished. It states that it "is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3." The panel decided the appeal without oral argument after it was submitted on Oct. 27, 2026.

What California's rule requires

The retailer argues that California's regulatory scheme, which requires certain cannabis retailers "to enter, or agree to enter, into a labor peace agreement with a 'bona fide labor organization'" to receive a commercial license, is unconstitutional and preempted by federal law, according to the memorandum. The court cited California Business and Professions Code sections 26001(ac) and 26051.5(a)(5)(A).

According to NW Labor Press, California requires labor peace agreements only for cannabis businesses with at least 10 employees. Under those agreements, the union agrees not to picket, boycott or otherwise economically interfere with the business, while the employer agrees to give the union reasonable access to meet with employees and not to disrupt organizing efforts, the outlet reported. Unlike Oregon's law, California's statute does not say the employer has to remain neutral, NW Labor Press noted.

How the case got here

The Marijuana Herald reported that Ctrl Alt Destroy filed its lawsuit in April 2024, arguing the requirement violates the First Amendment, the Equal Protection Clause and protections against vague laws, and is preempted by the National Labor Relations Act (NLRA). The district court case number, 3:24-cv-00753, is listed in the Ninth Circuit's memorandum.

According to The Marijuana Herald, the dispute began after the retailer signed a labor peace agreement with Professional Technical Union Local 33. California's Agricultural Labor Relations Board later determined that the group was not a legitimate labor organization under state law, which invalidated the agreement and required the retailer to get a new one to stay compliant, the outlet reported.

Robinson dismissed the case on March 12, 2025, according to NW Labor Press. The outlet reported that he found the case did not involve a substantial public interest because the state had not obstructed the retailer's federal rights. "Instead, the (labor peace agreement) sections are a reasonable attempt to regulate a newly legalized commercial industry," Robinson wrote, as quoted by NW Labor Press.

Part of a wider fight over cannabis labor laws

The California case is one of several federal court battles over state laws that tie cannabis licenses to union agreements.

In Oregon, U.S. District Judge Michael Simon blocked Measure 119, a voter-approved labor peace law, in a May 20, 2025 order, NW Labor Press reported. Simon found the law violated employers' First Amendment free speech rights and was preempted by the NLRA. The Oregon Liquor and Cannabis Commission said on May 29, 2025 that it would no longer require processors or retailers to submit labor peace agreements at license renewal, according to the outlet. At the time, UFCW Local 555 pointed to the California dismissal as a conflicting ruling, saying in a statement that "one of these rulings is destined to be overturned on appeal."

Oregon officials later asked a federal appeals court to reverse Simon's ruling, Marijuana Moment reported on Oct. 1, 2025. That case is on appeal to the Ninth Circuit, according to an Aug. 18, 2026 analysis by the law firm Foley Hoag.

In New Jersey, the U.S. District Court entered final judgment on Aug. 10, 2026 in Curaleaf Holdings v. New Jersey Cannabis Regulatory Commission, declaring that the state's labor peace requirement is preempted by the NLRA as applied to Curaleaf, according to Foley Hoag. The firm wrote that the commission had issued Curaleaf $610,000 in civil penalties for operating 122 days without an active agreement. New Jersey regulators filed a notice of appeal to the Third Circuit on Aug. 13, 2026, Foley Hoag reported, and the ruling directly binds only the parties to that case.

Why it matters beyond California

The unclean hands question reaches past labor rules. For state-licensed marijuana businesses that challenge state rules in federal court, the Nov. 2 memorandum, like Northbay Wellness before it, says federal illegality alone does not automatically close the courthouse door in the Ninth Circuit without the required balancing. Because the memorandum is unpublished, it is not binding precedent, but it applies the circuit's published Northbay Wellness standard.

The labor question itself also connects to federal cannabis policy. Courts in Oregon and New Jersey have found the NLRA can preempt state labor peace mandates for cannabis businesses, while California's rule remains in effect as its own challenge moves forward.

What happens next

The case now returns to Judge Robinson's court in the Southern District of California. The district court must perform the Northbay Wellness balancing analysis, consider California's argument about the retailer's other conduct and the retailer's argument that the state itself profits from the cannabis market, and may rule on California's other pending motion to dismiss. California's labor peace requirement stays in effect while the case continues, according to The Marijuana Herald.

Hemp Law Watch will follow the case, along with the pending Oregon appeal in the Ninth Circuit and New Jersey's appeal in the Third Circuit.

This report is for information only and is not legal advice.