California Medical Marijuana Collective, Cooperative or Non-Profit?

Q: I want to start a California medical marijuana dispensary and/or delivery service. What is the difference between a collective and a cooperative, or a non-profit?

A: True California medical marijuana dispensaries, those which possess a physical location as a business sometimes referred to as the “store front”, are essentially always formed as some type of legally recognized entity under California law. The purpose of forming the entity not only gives the starters of the business limited liability according to the rules of corporations (known as the “incorporators”), but also serves best to comply with the spirit of the law of the Compassionate Use Act, the Medical Marijuana Plan, and the persuasive opinions of the Attorney General as laid out in the Guidelines for the Security and Non-Diversion of Marijuana Grown for Medical Use. As noted by the Attorney General:

Nothing in Proposition 215 or the MMP authorizes collectives, cooperatives or individuals to profit from the sale or distribution of marijuana. (See, e.g., §11362.765(a) [“nothing in this section shall authorize any individual or group to cultivate or distribute marijuana for profit”].

California caselaw has come down more clearly on the issue, impliedly mandating that dispensaries and entity collectives form as non-profits. Qualified Patients Association v. City of Anaheim (2010) 187 Cal.App.4th 734, 746 (“The MMPA bars individuals and any collective, cooperative, or other group from transforming medical marijuana projects authorized under the MMPA into for-profit enterprises.”). Any group of patients or caregivers seeking to form a dispensary, therefore, has several types of entities to choose from when forming the business.

The most common and most widely used entity for California dispensaries is the mutual benefit corporation (“MBC”), as defined under California Corporations Code §§7110, et seq. Like a traditional corporation, the MBC has members, a board of directors, and officers like a CEO and Secretary. What sets the MBC apart from usual for-profit corporations is that the purpose of an MBC is to provide only for the benefit of its members, and not to make a profit. Therefore nearly all California dispensaries require patients to join in their membership of the entity before actually providing medical marijuana to them.

Some California dispensaries form as some type of public, educational or religious non-profit organization. These are true non-profits, and tend to have more rigorous requirements than the mutual benefit corporation, with major changes in corporate structure being subject to approval or objection by the California Attorney General. However, these non-profits may be eligible for tax exempt status under California law. Even so, the principle of closed-circuit membership still applies, and non-profits should not distribute medical marijuana to non-members or non-patients.

Very few dispensaries form as a cooperative corporation, as defined under California Corporations Code §§12200, et seq. A non-profit cannot call itself a “co-op” or “cooperative” unless officially created and registered under this part of the Corporations Code. A cooperative corporation, like a mutual benefit corporation, is designed for the benefit of its members, but for their benefit as patrons of the corporation. This entity is democratically controlled, has voting members, and unlike the other non-profits, allows members to receive distributions from any excess supply of the corporation. Many dispensaries find this class of non-profit undesirable because it has certain registration requirements, and frequently opt for the more streamlined mutual benefit corporation.
Collectives, on the other hand, are technically not a recognized entity under the California Corporations Code. The term “collective” comes from the MMP provision under California Health and Safety Code §11362.775, which permits patients and caregivers to “collectively or cooperatively” cultivate medical marijuana. While the term “cooperatively” impliedly referred to the cooperative corporation, the term “collectively” remained undefined. The California Attorney General attempted to deduce a logical interpretation of the phrase, stating:

…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.

Medical marijuana collectives normally involve a written membership agreement, specifying the purpose of the collective and written authorizations between members, either for transporting or cultivating medical marijuana. But as noted above, those seeking to start a dispensary should consider have both a legal entity as a non-profit, and a collective in order manage assets as well as members.

No one should begin a California medical marijuana dispensary or delivery service without first consulting with a competent attorney, knowledgeable in California’s medical marijuana laws. Contact a local law office familiar with the incorporation of business entities and non-profits, as well as California’s medical marijuana laws.

Beck Law P.C. is located in Santa Rosa and offers an entire scope of Medical Marijuana related services to clients in Santa Rosa, Petaluma, Cotati, Rohnert Park, Sebastopol, Healdsburg, Sonoma, Kenwood, Glen Ellen, Windsor, Bodega Bay, Ukiah, Willits, Clearlake, Lakeport, Kelseyville and throughout Sonoma, Mendocino and Lake County.

Beck Law P.C. can furnish the experience and knowledge to help guide you through the complexities of California Medical Marijuana law.

Making an appointment to meet with us is an investment in exploring what options may or may not apply to your particular situation. Your visit to the Beck Law Offices is confidential, as is the information discussed. You can contact our office at 707-576-7175 or contact us online.


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