medical marijuana collective cooperativeThe news media seem to have at least one “medical marijuana” story every day, whether because a city is seeking to limit its distribution, neighbors are complaining about the patrons or an undercover investigation by a reporter has revealed the ease with which “prescriptions” may be obtained.  This blog post deals solely with some of the business aspects of such establishments.

The Compassionate Use Act of 1996 (Prop 215) and the Medical Marijuana Program Act (Senate Bill 420) decriminalized medical marijuana use and implemented a statewide identification card system for medical marijuana users and providers under California law.  Since then, scores of medical marijuana “dispensaries” began operating throughout California.

However, according to the California Attorney General such dispensaries are not necessarily recognized under California law. Cal. Atty. Gen., Guidelines for the Security and Non-diversion of Marijuana Grown for Medical Use (Aug.2008) (A.G. Guidelines).  In fact the only organizations that may legally dispense medical marijuana are cooperatives and collectives. Health & Saf. Code, §11362.775.

Cooperatives: While operation of a consumer corporation cooperative is an area of well settled law, guidance regarding the operation of a medical marijuana cooperative is scant.  The cooperative must file articles of incorporation and must conduct its business for the mutual benefit of its members.  The cooperative must not be organized to make a profit – its earnings and savings must be used for the general welfare of its members.  Current and prospective operators of such a cooperative would be well advised to review the A.G. Guidelines  .

Collectives: California law does not define a collective, but the dictionary defines it as “a business, farm, etc., jointly owned and operated by the members of a group.” Random House Unabridged Dictionary; Random House, Inc. © 2006.  A collective should be an organization that merely facilitates the collaborative efforts of patient and caregiver members – including the allocation of costs and revenues.  As such, a collective is not a statutory entity, but as a practical matter it might have to organize as some form of business to carry out its activities.  The collective should not purchase or sell marijuana to non-members – instead, it should only provide a means for facilitating and coordinating transactions between members.

Both Cooperatives and Collectives:

  • Must not cultivate or distribute marijuana for profit
  • Must obtain a seller’s permit; the State Board of Equalization has determined that medical marijuana transactions are subject to sales tax, regardless of the absence of profit (some cities and counties also require business licenses)
  • Should use membership applications and verify that any would-be member possess a valid state medical marijuana identification card (medical marijuana identification card numbers may be verified online)
  • Should obtain marijuana only from their constituent members
  • May not sell or distribute marijuana to non-members
  • May distribute marijuana grown at the collective or cooperative to members for free, in exchange for services rendered or allocated according to fees reasonably calculated to cover overhead costs and operating expenses
  • Should provide adequate security and maintain accurate records, including a general ledger of all cash transactions

The contents of this blog posting should not be viewed as a comprehensive recitation of the law or solely relied upon to organize and/or operate a collective or cooperative.  Medical marijuana providers must comply with California law or face arrest and seizure.  Please note that Federal law does not provide exemptions to medical marijuana providers.  Those seeking to organize and/or operate a collective or cooperative, or those facing legal issues related to the same, are advised to consult a business attorney.

The attorneys at Reid & Hellyer are skilled in many practice areas including bankruptcy, business, litigation, real estate and mediation.

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