Has the time bomb under coffeeshops stopped ticking this week?

“ _Time bomb under coffeeshops stops ticking this week... or explodes_”, wrote Derrick Bergman (VOC) on 12 September 2023. A day later, it happened. The Administrative Jurisdiction Division of the Council of State (hereafter referred to as the Division) delivered judgment yesterday in two cases concerning coffeeshops. The cases are set in Roermond and Apeldoorn.

Roermond Case

Two coffeeshops have been established in Roermond for many years. For over thirty years, these coffeeshops have been owned by the same operator. Every five years, he requested and received an operating permit from the mayor, granting him the right to sell non-alcoholic drinks and light snacks from his coffeeshops. Such a permit is mandatory under the General Local Regulation (APV) of Roermond. This permit does not grant permission to sell cannabis products. That is not allowed. The mayor is not legally authorised to grant a permit for the sale of cannabis. The mayor did not provide the operator with a letter stating that the sale of cannabis was tolerated. The tolerance status was therefore not evident from a written tolerance statement, but everyone knew that Roermond's coffeeshop policy allowed for the tolerance of two coffeeshops with operating permits.

_Fixed-term permit_

Although the Division's ruling gives a different impression on this point, the permit was always granted for a period of 5 years. This allowed the mayor to periodically assess whether the rules were being properly observed by the operator. The operator had no issue with this. There was a good relationship with the police and the municipality, and regular consultations took place. Traffic and parking nuisance were frequently discussed. All parties agreed that the locations were not optimal in terms of traffic and parking. For this reason, the owner of the coffeeshops had proactively proposed at least 11 alternative locations for his coffeeshops to the municipality over the past years. Not a single location was deemed suitable, sometimes with arguments and sometimes without.

_New approach (scarce right)_

On 10 October 2019, the mayor of Roermond granted two operating permits with a new 5-year term. A large number of conditions were attached to these permits—as the owner was accustomed to. Some of these went very far (such as: waiting customers in a queue = nuisance), but I will not dwell on those here. What was new was the statement in the cover letter that the permits were considered a 'scarce right' and that work was being done on a new policy.

This made the operator alert. Briefly summarised, a scarce right exists when the demand for permits exceeds the supply. The mayor wrote: “ _This may mean for you that after the expiry of the current permit, third parties may compete for a permit to operate a coffeeshop in Roermond_”.

_Objection and appeal_

The possibility that a new policy could mean the owner might lose both his coffeeshops prompted an objection to the duration of the permits. The objection was brief and concise: “You state that the granted operating permits must be regarded as a scarce right in application of the Services Act. That assertion is expressly contested. The Services Act does not apply to activities which, as you yourself write, are “illegal according to the Opium Act”.

_Furthermore, I note that you have not granted a permit for the sale of cannabis, but for non-alcoholic drinks. Such permits are not scarce, so the principle you have applied is not compatible with the law_.”

The objection was declared unfounded by the mayor, leading to a court case. The Limburg District Court upheld the defense. On 30 March 2021, the Limburg District Court ruled that the operating permits are not scarce and should therefore have been granted for an indefinite period. The court made it crystal clear that the rules governing the distribution of scarce permits do not apply to a tolerance statement for the sale of cannabis. The mayor of Roermond appealed against that ruling.

_Awaiting the Division's judgment_

Not only many coffeeshop owners, but also lawyers working for municipalities, had to wait a long time for the Division's final judgment. There was also interest from academic circles. During the hearing of the appeal on 27 March 2023, staff from the law faculty of Leiden University were present. In his introduction, the chairman stated that the judgment in this matter could be important for the entire coffeeshop sector. This strengthened the expectation that the ruling would clarify in practice whether coffeeshop owners possess a scarce right and whether mayors are therefore no longer authorised to tolerate an operator indefinitely.

What is the situation regarding that scarce right for coffeeshops?

The Division's ruling is disappointing on this point. It is not clear from the Division's judgment what they think about this. The ruling clarifies a few things:

1. The mayor is authorised to grant an operating permit for a fixed duration (e.g., 5 years) to protect public order and the living environment. This allows the mayor to periodically assess whether a permit should be granted again or whether this is no longer desirable in view of public order. The tolerance statement, which is not recorded on a separate document, follows the duration of the operating permit.
2. No permission for the sale of cannabis products may be granted in the operating permit, but the mayor is authorised to establish very specific policy rules showing how he takes into account the special nature of a coffeeshop. For example, a maximum can be set for the number of coffeeshops, and rules can be established to prevent nuisance, which lead to administrative intervention if not complied with.

What we do not read in the ruling is whether the mayor is obliged to periodically offer interested parties the opportunity to obtain an operating permit for a coffeeshop. That was the reason for the mayor of Roermond to start the new line of policy. Her argument was that she had to act this way according to the law because, in her view, coffeeshops involve scarce rights.

The Division took no position on this but did arrive at a significant improvement in the legal position of coffeeshop owners in another case. In light of future discussions on scarce rights for coffeeshops, this is certainly good news for the industry in my view.

Apeldoorn Case

In Apeldoorn, a tolerance statement that had been issued for an indefinite period by the mayor was replaced by a fixed-term tolerance statement based on the Services Directive/Services Act (“scarce rights”).

The objection lodged against this by the coffeeshop owner was declared inadmissible by the mayor (as was the appeal to the district court). Why? Until yesterday, decisions regarding tolerance statements were not regarded as a decision within the meaning of the General Administrative Law Act (Awb). This meant that the coffeeshop owner could not object to a mayor's refusal to grant a tolerance statement. The same applied to the withdrawal of a tolerance statement. In short, holders of tolerance statements could not count on proper legal protection. To qualify for it, they had to sell cannabis without being tolerated and thus provoke administrative action. You could, after all, object to an enforcement decision. With one exception, the administrative court consistently ignored the criminal law risks that had to be taken in doing so.

The new line of the Division is as follows. Quote:

"The Division acknowledges that the refusal to grant or the withdrawal of a tolerance statement can have such far-reaching consequences for the applicant or the person involved that for that reason an exception must be made to the main rule that a tolerance statement is not a decision. This applies if the lack of legal protection would be 'disproportionately onerous'."

Finally! However, this does not mean that a tolerance statement is the same as a permit and therefore also a scarce right.

What now?

I had anticipated that the Division might postpone the discussion on scarce rights for coffeeshops. This has happened, but I did not foresee the way it was done. It is quite impressive to read how the Division managed to avoid ruling on this.

On the 'Binnenlands Bestuur' website of 13 September 2023, the following was said about the ‘scarce permit’. Quote: _Mayor Donders also wanted to tender the permit so that other candidates could take over the shops. According to the rules of a catering permit, a coffeeshop could be operated indefinitely by the same owner. But if it is considered a ‘scarce’ permit for a coffeeshop, it must be legally tendered, according to the municipality of Roermond. The Council of State does not go that far. ‘The Council says nothing about a scarce permit’, the spokesperson emphasised. ‘This is something that could potentially be subject to a later procedure.’_

The conclusion is that the question of whether the tolerated coffeeshop owner possesses a scarce right remains unanswered. Has the bomb exploded very quietly without any damage, or is it still ticking? The future will tell.

André Beckers, Lawyer

Thursday, 14 September 2023

Scarce rights and European freedoms

Scarce rights refer to permits that are only available to a limited extent and for which potential operators must compete. According to the Treaty on the Functioning of the European Union (TFEU) and the Services Directive, such permits must in principle be distributed in a non-discriminatory and transparent manner. However, the situation regarding coffeeshops is unique and requires closer consideration.

Exceptions in the Services Directive

The Services Directive does not apply to activities that require specific public order and consumer protection, such as gambling activities (Preamble point 25 of the Services Directive). This principle can also be applied to the sale of soft drugs in coffeeshops. The sale of soft drugs, although tolerated under certain conditions, involves significant risks to public order, public health, and the living environment.

Case law shows that a tolerance statement is not a permit and therefore cannot be regarded as a scarce right as long as the Opium Act remains in force (Limburg District Court, 30 March 2021). The current tolerance status of coffeeshops means that there is no fully legal economic circuit, which is also supported by the judgment of the European Court of Justice in the Josemans case (C-137/09).

Coffeeshops in the weed experiment

On 17 June, the transitional phase of the weed experiment began. During this experiment, the cultivation, delivery, and sale of soft drugs in participating municipalities is temporarily declared legal, whereby the prohibitive provisions of the Opium Act for these actions are declared inapplicable (closed coffeeshop supply chain experiment act, Art. 3). However, the legislator has explicitly stated that this does not mean that a legal economic and commercial circuit as intended in the European freedoms is created. The European freedoms of movement, including the Services Directive, do not apply to the sale of cannabis during the weed experiment.

No obligation to apply scarce permits

During the weed experiment, the use of an equal opportunities procedure for the distribution of operating permits for coffeeshops is not mandatory and is strongly discouraged. Introducing scarce permits would create unnecessary risks to public order, public health, and the living environment. The legal and practical complications, such as repeatedly moving coffeeshops to new locations, would lead to a disruption of public order and an additional burden on local residents.

Objections to equal opportunities procedures

The operation of coffeeshops requires strict compliance with the AHOJGI criteria (no advertising, no hard drugs, no nuisance, no sales to minors, no sales of large quantities, and no access for youth under 18). These criteria are established to protect public order and public health. An equal opportunities procedure could lead to coffeeshops at new locations, which can disrupt public order and the living environment.

Practical problems with new permits

The repeated allocation of new permits can lead to uncertainty and unrest among both operators and residents. Examples from municipalities such as Eindhoven, Tilburg, and Hellevoetsluis show that there is often significant resistance to the establishment of new coffeeshops, leading to lengthy legal procedures and delays in opening new branches. This is not merely an administrative challenge, but a fundamental problem that affects stability and public order.

Coffeeshops that have operated at the same location for a long time have generally achieved a certain degree of acceptance and integration within the neighbourhood. Residents are accustomed to the presence of the coffeeshop, which contributes to a sense of stability and predictability in the district. This local trust and the established relationship between operators and neighbourhood residents reduce the chance of nuisance and promote a peaceful living environment.

When closing or moving an existing coffeeshop, there is a real risk that street dealers will establish themselves at the former location of the coffeeshop. These dealers try to attract the former customers of the coffeeshop, leading to an increase in illegal activities and nuisance in the neighbourhood. Furthermore, we express significant concerns about the potential consequences for public order and safety. Currently, coffeeshops are established and regulated via the existing tolerance policy, with established entrepreneurs responsible for the back-door.

These coffeeshop entrepreneurs often have a good relationship with local government, and they are carefully and regularly monitored by local authorities. Introducing scarce permits would break these existing relationships, and it will be unclear who becomes responsible for the organisation and the back-door provision. This lack of transparency and clarity can lead to undesirable situations and an increased risk of illegal activities. Safeguarding public order and safety is a top priority, and the current tolerance policy has proven effective in reducing nuisance and minimising the influence of criminal organisations. Scarce permits could disrupt this delicate balance and open doors for uncontrolled and potentially undesirable practices.

Exception according to the law

It is of crucial importance that municipal administrative bodies refrain from applying an equal opportunities procedure in the distribution of permits for coffeeshops. The unique nature of the sale of soft drugs and the associated risks to public order, safety, and public health justify an exception to the rules for scarce rights, similar to the exceptions that apply to gambling activities, as laid down in the European Services Directive (Directive 2006/123/EC, Preamble point 25).

Municipalities should support existing coffeeshops by granting them permits for an indefinite period, as permitted under Article 9 and Article 12 of the Services Directive, provided this is justified by an overriding reason in the public interest. In light of case law, such as the Josemans judgment of the European Court of Justice (Case C-137/09), which confirms that the sale of soft drugs does not fall under the freedoms of movement, it is clear that coffeeshops occupy an exceptional position. Given the unique character of the sale of soft drugs and the necessary measures to protect public order and public health, the operation of coffeeshops must be exempted from the rules regarding scarce rights as laid down in the Services Directive. The case law and the specific context of the tolerance policy and the weed experiment make it clear that the strict application of these European rules is not appropriate for this sector. It is evident that the implementation of scarce permits during the weed experiment is not only unnecessary but also potentially harmful.

Municipal administrative bodies are strongly advised to refrain from such procedures. Maintaining a stable and safe operating environment for coffeeshops is crucial for the preservation of public order and public health. This approach guarantees continuity, safety, and acceptance of coffeeshops within their communities, and prevents the negative consequences of hasty and unfounded changes in permit policy.

BCD Editorial Board, 24 June 2024