A Primer on Medical Marijuana in California 

Amid the state's cannabis gold rush, some dispensaries have lost sight of the law. Here are the rules.

In 1996, California voters approved Proposition 215, which made it legal for people with a doctor's recommendation to use marijuana for medical purposes. Because the act did not say how patients could obtain marijuana other than to grow it themselves, in 2003, the legislature passed the Medical Marijuana Program Act, which authorized patients and caregivers to cultivate and distribute marijuana as collectives or cooperatives, but not for profit. Unfortunately, some organizers operated just like private for-profit businesses. These operations have given a bad name to the patients and caregivers who wish to operate within the law.

But even after sixteen years, the law is still vague on some points and many issues are being fought out in the courts. Given that, there are some basic guidelines to follow for setting up a medical marijuana organization like a dispensary, delivery service, or growing facility consistent with the law.

Dispensing, possessing, and cultivating medical marijuana is still prohibited under federal law. Therefore, federal law enforcement officials may still prosecute you, even though you are in compliance with California and local law. On a recent visit to Oakland, US Attorney General Eric Holder said that the Obama administration would leave medical marijuana suppliers alone if they were complying with state law. Of course, this is no guarantee. It is, however, a good reason to do your best to comply with state law. Here is how to do that.

Become a qualified patient or caregiver. All members of medical marijuana collectives or cooperatives must be qualified patients or the primary caregiver of a qualified patient in the collective or cooperative. To be a qualified patient, you need a doctor's recommendation. A "primary caregiver" is defined as "the individual designated by the [patient] who has consistently assumed responsibility for the housing, health, or safety of that person." A primary caregiver is not just your pot dealer.

Become a not-for-profit cooperative or a collective. The law is not clear on what type of organization qualifies as a medical marijuana cooperative or collective. Most patient groups choose to organize themselves under the California consumer cooperative statute or the California nonprofit mutual benefit corporation statute. State law says that marijuana shall not be cultivated or distributed for profit. This is somewhat vague, but probably means that there should be no outside investors who make a dividend and no one should be compensated at outrageously high levels.

However, technically, the entity itself can't cultivate marijuana. Only patients and their caregivers are exempt from prosecution for cultivation — the entity that they form is NOT. Therefore, individual members of the cooperative may cultivate marijuana and the cooperative may facilitate transactions between the members so that those who can't cultivate marijuana themselves can receive marijuana from those members that can. In practical terms, this means that the cooperative should not hire employees or contractors who are not members of the cooperative to cultivate marijuana.

Find a location. This is probably the most complicated part. Every local government treats medical marijuana cooperatives and collectives differently. While local governments cannot regulate what patients and their caregivers do in the privacy of their own home with a limited number of plants as long as it does not cause a nuisance, setting up a larger facility will require compliance with local business licensing and zoning laws.

Although it is still being disputed, recent cases have been granting cities and counties the right to prohibit dispensaries and similar operations altogether, and most in the East Bay have either banned dispensaries or limited them in number. Until this issue is settled, you should check to see if the city in which you want to locate has a ban or moratorium in place. For instance, ordinances regulating dispensaries may not apply to delivery services.

Other cities simply do not have a zoning process for medical marijuana organizations and will not issue business permits without that zoning clearance. However, you need a business permit to legally operate a commercial-type facility or activity. Some collectives have chosen to open without zoning clearance or a business permit, but cities have civilly prosecuted dispensaries without permits or zoning clearance as public nuisances.

The definitions of various types of medical marijuana organizations varies from city to city. In Oakland, for instance, a dispensary is any collective or cooperative with four or more patients or caregivers who facilitate or assist in the lawful production, acquisition, or distribution of medical cannabis.

Your best bet is to open in a city that explicitly allows it and find out what the requirements are to do so. In many cities getting a permit to operate a medical marijuana facility is a highly competitive process due to the limited number of permits allowed.

Operate by the books: Once you've formed your collective and are operating legally under local law, there are lots of practices you can adopt to minimize the risk of attention from federal, state, and local regulators.

Obtain a state seller's permit and pay sales tax.

Create a system to ensure that all members have a current valid doctor's recommendation.

Only do business with members.

Have security precautions in place to prevent theft, loitering, and other nuisances.

Find an accountant who understands medical marijuana dispensaries.

It is important to pay attention to all the details. Remember, the government got Al Capone for income-tax evasion — not bootlegging.

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