The court affirmed a lower court ruling dismissing the city’s lawsuit against the attorney general and U.S. attorney for Northern California. Cedric Chao, the attorney who represented the city, said he and City Attorney Barbara Parker would be consulting with the mayor and City Council to determine their next step. “Although federal agencies have discretion, that discretion is not without limits,” he said.

Harborside bills itself as the nation’s largest medical marijuana dispensary.

U.S. Attorney Melinda Haag said at the time she began the process to seize Harborside’s property in 2012 that it violated federal law by selling pot, even though medical marijuana was legal in California. The Department of Justice more recently said it wouldn’t interfere with state marijuana laws as long as the states tightly regulate the drug and make efforts to keep it from children, criminal drug cartels and other states.

Oakland’s lawsuit trying to block the seizure was thought to be the first brought by a local government on behalf of a pot shop. The city argued that Harborside’s closure would deprive it of much-needed tax revenue and increase crime by creating a black market for marijuana.

The appeals court said the expected tax revenue loss was sufficient grounds to give Oakland the right to bring the lawsuit. But the court said the proper venue to challenge the government’s decision is the forfeiture proceeding itself. Oakland, however, is unable to participate in the forfeiture action because it lacks an interest in Harborside’s property, the court said.

The forfeiture case against the dispensary had been put on hold and Harborside remains open, said Henry Wykowski, Harborside’s attorney.

He noted that the 9th Circuit ruling said Harborside was following state and local laws, and said he was hopeful the U.S. Attorney’s Office would dismiss the case “in light of all of the voter initiatives and polls that show the majority of people think that cannabis should be legalized.”