February 8, 2016

Basalt water case could 
affect state’s pot industry

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BASALT – Can Colorado ‘lawfully’ grant a new water right to grow its marijuana?

If officials in Division 5 water court in Glenwood Springs rule it’s illegal to grant a water right to grow marijuana, it could shut down the pot industry in Colorado, an attorney for High Valley Farms, a Basalt-based marijuana growing facility, has told the court.

“If this court were to determine that, contrary to the findings of the state engineer, the use of water for marijuana facilities is not a beneficial use, the entire industry, which reportedly employs almost 16,000 residents, would be shut down,” wrote Rhonda J. Bazil, an attorney in Aspen for High Valley Farms LLC.

High Valley Farms supplies marijuana to the Silverpeak store in Aspen. The grow site and the retail store are commonly owned and Jordan Lewis is CEO of both Silverpeak and High Valley Farms.

High Valley Farms applied in August 2014 for water rights to grow 2,000 to 3,000 pot plants in a 25,000-square-foot facility between the Roaring Fork River and Highway 82, across from Holland Hills and next to the Roaring Fork Club.

(Since the original application was filed, it has been amended, and High Valley’s request is now best reflected in a proposed decree dated Nov. 13, 2015).

In response to both the original and amended High Valley Farms applications, a water court referee who initially reviews applications asked High Valley to answer the question of whether a water right to grow marijuana in Colorado can be “lawfully” granted when the plant is illegal under federal law.

Other marijuana-growing operations in Colorado have typically gotten their water by using existing water rights, and not by applying for new rights specifically to grow pot, as High Valley Farms has done.

For example, a grower might have bought land that came with water rights, or may have leased water from a district or city with existing water rights.

Whether the High Valley Farms case implodes the pot industry or not, the case is on track to set legal precedent.

“Because this is reportedly the first case of its type in Colorado, the court has asked that High Valley address whether marijuana cultivation is a beneficial use under under” state law, Bazil wrote in her answer, filed in November.

“This is a critical issue to the entire industry,” she told the court. “If marijuana cultivation is considered to be an unlawful use of water under state law, the constitutional amendment would essentially be invalidated.”

The passage of Amendment 64 in 2012 changed the state constitution and allowed for the legal production and sale of marijuana in Colorado.

The provision of state law that the court and Bazil are now parsing is CRS 37.92-103(4), a core tenant of Colorado water law.

“‘Beneficial use’ means the use of that amount of water that is reasonable and appropriate under reasonably efficient practices to accomplish without waste the purpose for which the appropriation is lawfully made,” the statue reads.

It’s the word “lawfully” that is in question in the case.

As in, can an appropriation of water in Colorado to grow pot be “lawfully made” given it’s still illegal under federal law to grow weed?

The answer matters, because if it’s not a “lawfully” made appropriation, it’s not a “beneficial use” of water.

Bazil told the court that imposing the federal Controlled Substances Act “onto the beneficial use statute in relation to Amendment 64 would result in every marijuana cultivation facility in this state being operated illegally whether they are providing their own water supply or are operating with water from a municipality.

“To follow this argument to its logical conclusion, the state of Colorado would have to suspend all marijuana retail, cultivation, testing and manufacturing facility licenses because there would not be any water available from any source,” Bazil wrote. “This would be an absurd result.”

But Bazil also told the court, “Fortunately, there are regulations, case law and statutes that support the position that marijuana cultivation is a beneficial use of water in Colorado.”

Bazil makes three main arguments: The state water engineer has said it’s okay to use water to grow pot plants; The federal Bureau of Reclamation has also said it’s okay to water pot plants in Colorado, as long as you don’t use water taken directly from a federal facility; the federal government has ceded general management of water rights to the states.

The High Valley Farms facility sits between the Roaring Fork River and Hwy 82, across from Holland Hills, just upvalley from Basalt. It seeks to use water from the Fork and a well in a potentially precedent-setting case.

Brent Gardner-Smith/Aspen Journalism

The High Valley Farms facility sits between the Roaring Fork River and Hwy 82, across from Holland Hills, just upvalley from Basalt. It seeks to use water from the Fork and a well in a potentially precedent-setting case.

Ref’s question

In response to High Valley’s application, the court’s water referee, Holly Kirsner Strablizky, posed the “lawfully made” question as part of a “summary of consultation” report from the division engineer.

In such reports, the division engineer typically describes their own concerns and also those of the water court referee, if they have any, without disclosing who has which concerns.

So while the marijuana question has technically been raised in a report from the division engineer, it’s understood by those close to the High Valley Farms case that the referee has posed the question.

“The applicant must explain how the claim for these conditional water rights can be granted in light of the definition of beneficial use as defined in C.R.S. § 37-92-103(4),” report states. “Specifically, beneficial use means ‘the use of that amount of water that is reasonable and appropriate under reasonably efficient practices to accomplish without waste the purpose for which the appropriation is lawfully made.’ (emphasis added).”

Krisner Strablizky does not discuss court cases before her. And Bazil did not return several requests for comment.

There has been one statement of opposition filed in the water court case, by the Roaring Fork Club, which is just downstream of the High Valley Farms facility.

Attorney Scott Miller of Patrick, Miller, & Noto in Basalt, who represents the club, said their interest in the case is not about the marijuana question but only in the relatively straightforward request to physically use water.

High Valley Farms seeks a right to use 0.5 cubic feet per second of water from the Roaring Fork River in the grow facility, the right to store .61 acre-feet of water in underground tanks, and the right to use up to 7.56 acre-feet of water a year in its operations from an onsite well.

The operation would use 5.82 acre-feet of water a year at the facility’s current size and up to 7.56 acre-feet if expanded to 37,500 square feet.

What appears to be an underground water tank, yet to be buried, next to the High Valley Farms grow facility in Basalt. High Valley Farms LLC has applied for the right to store water in an underground tank.

Brent Gardner-Smith,/Aspen Journalism

What appears to be an underground water tank, yet to be buried, next to the High Valley Farms grow facility in Basalt. High Valley Farms LLC has applied for the right to store water in an underground tank.

Whose call?

Now that Bazil has made High Valley Farms’ case, the water court referee has several options.

She could accept the arguments from High Valley Farms and the matter could end there.

She could, without making a ruling, refer the case to Judge James Boyd, who presides over Div 5 water court.

Or she could reject the legal argument, and then High Valley Farms could appeal to Boyd.

If the judge eventually rules against it, High Valley Farms could appeal directly to the Colorado Supreme Court.

A case management memo filed by Kirsner Strablizky after a Jan. 28 status conference with Bazil and Jason Groves, another attorney for the Roaring Fork Club, tees up the next step in the case.

“Applicant (Bazil) stated that she and opposer (the club) are working together to finalize details regarding the proposed ruling,” Kirsner Strablizky wrote, suggesting the physical water issues in the case may be relatively straightforward.

The court asked whether, once stipulated, does the applicant desire for the referee or judge to determine whether the application is for a beneficial use,” Kirsner Strablizky also wrote, which means Bazil was asked if she preferred whether the referee or the judge rules on her argument.

“The applicant stated that the referee should process it as she feels fit,” Kirsner Strablizky wrote.

The Roaring River, looking downstream, with two men standing on an irrigation headgate, river left, at the Roaring Fork Club. The High Valley Farms facility is just upstream, river right, and not in the photo.

Source: State of Colo / Colorado Supreme Court

The Roaring River, looking downstream, with two men standing on an irrigation headgate, river left, at the Roaring Fork Club. The High Valley Farms facility is just upstream, river right, and not in the photo.

The argument

In her answer to the court’s question, Bazil was upfront that High Valley Farms filed its application “to provide water for commercial and irrigation uses inside a greenhouse in which marijuana is grown.”

“Like most other commercial agricultural products grown in Colorado, marijuana cultivation requires supplemental irrigation,” she notes.

Then Bazil describes various green lights, if you will, along the road of her argument.

First, she points out the state water engineer’s office does not object to using water to grow pot instead of, say, strawberries.

Bazil cites a fact sheet issued in October 2014 by the state engineer called “Well and Water Use in Regards to Amendment 64 and Cultivation of Marijuana” in which “the state engineer is treating marijuana like any other cultivated plant.”

Then she directs the court to the Colorado Retail Marijuana Code developed by the state Dept. of Revenue.

“In addition to the regulations confirming the appropriateness of the use of water in marijuana facilities, the regulations specifically require that an adequate supply of water he provided to marijuana facilities,” Bazil writes, adding it’s important to note that two state agencies have now issued rules for using water in grow facilities.

In terms of federal policy, Bazil cited a policy adopted by the Bureau of Reclamation, which she says “reinforces Colorado’s right to use water for marijuana cultivation.”

The bureau’s policy, Bazil writes, ”prohibits the use of reclamation facilities or water in a manner that is inconsistent with the Controlled Substances Act, but the policy specifically excludes “non-contract water commingled with contract water in non-federal facilities.’

“In other words, water may be used under state law for marijuana cultivation as long as the water is not stored in a federal reservoir and the water is not a Bureau of Reclamation water right,” Bazil explains.

High Valley Farms is seeking water rights for exchange and augmentation from two water districts, to better protect its access to water rights in times of drought.

It seeks the right to 2.3 acre feet of water from the Basalt Water and Conservancy District’s Troy and Edith Ditch, and not from Ruedi Reservoir directly, and .9 acre-feet from the Colorado River District’s Wolford Reservoir.

Both sources of augmentation water are from non-federal sources of water, and so are consistent with the Bureau policy, Bazil notes.

She also cites a 1952 federal law, the McCarran Amendment, by which the federal government ceded authority to manage water rights to the states.

“In short, state law governs the adjudication of water rights,” Bazil wrote.

Editor’s note: Aspen Journalism and the Aspen Daily News are collaborating on coverage of rivers and water. The Daily News published this story on Feb. 8, 2016.

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