California Health & Safety Code Section 11362.81(d) requires that “the Attorney General shall develop and adopt appropriate guidelines to ensure the security and nondiversion of marijuana grown for medical use by patients qualified under the Compassionate Use Act of 1996.” Pursuant to this requirement, in August 2008, California Attorney General Jerry Brown published the “Guidelines for the Security and Non-Diversion of Marijuana Grown for Medical Use.”

Article IV of the Guidelines, titled “Guidelines Regarding Collectives and Cooperatives” provides recommendations for “qualified patients and primary caregivers who come together to collectively or cooperatively cultivate physician-recommended marijuana.” The only type of statutory California corporate entity recognized by the Attorney General in the Guidelines is a cooperative organized under the Corporations Code or under the Food and Agriculture Code. The cooperative corporation is well suited to qualified medical marijuana patients who desire to work cooperatively to provide for the cultivation and distribution of medical marijuana to their member patients. Because the cooperative corporation’s organizational structure is aimed at the mutual benefit of members only, this entity can also provide safeguards against the diversion of medical marijuana to non-medical purposes.

We assist qualified patient clients to form California Consumer Cooperative corporations under the California Corporations Code (Sections 12200-12704). Such cooperative corporations are non-profit business entities. We must emphasize this fact. California medical marijuana law as codified by the Compassionate Use Act and the MMP does not allow for the cultivation and distribution of medical marijuana for profit. Likewise the California Corporations Code specifically requires that Consumer Cooperative corporations must be “democratically controlled” and “not organized to make a profit for themselves, as such, or for their members, as such, but primarily for their members as patrons” (Cal. Corp. Code Sec. 12243).

The Attorney General Guidelines provide several guidelines and practices for operating collective growing operations to help ensure lawful operation under California’s Medical Marijuana Program Act. These include that the cooperative must:

(1) operate as a Non-Profit Operation,
(2) comply with all required and applicable Business Licenses, Sales Tax, and Seller’s Permits,
(3) adopt and carefully follow procedures for verification of Members’ qualification as qualified medical marijuana patients, including adopting membership application agreements aimed at preventing the diversion of cooperatively distributed medical marijuana to non-medical uses,
(4) acquire, possess, and distribute only lawfully cultivated marijuana,
(5) prohibit distribution and sales to non-members,
(6) provide for only non-profit distribution to members and permissible reimbursement to the cooperative for costs reasonably calculated to cover the overhead costs and operating expenses of the cooperative,
(7) adhere to the Attorney General’s guidelines for possession and cultivation, which include aggregate amounts of up to 8 oz. of dried marijuana flowers per qualified patient or up to six mature plants (or 12 immature plants), and
(8) provide “adequate security to ensure that patients are safe and that surrounding homes or businesses are not negatively impacted by nuisance activity such as loitering or crime” as well as to deter fraud, robberies, and to maintain good bookkeeping records.

The above outline is not a verbatim recitation of the Attorney General’s Guidelines for cooperatives, but is rather a synopsis. We counsel our clients on the ins and outs of each of the guidelines and assist our clients in interpreting the guidelines to help ensure best practices for California Cooperative corporations formed to cultivate and distribute medical marijuana to qualified patient members.

Our basic entity formation package includes the following:

  • Filing Articles of Incorporation with the Secretary of State to create a California Consumer Cooperative corporation.
  • Creation of corporate Bylaws compliant with the California Corporations Code (Sections 12200-12704).
  • Perfection of the Organization of the cooperative through appointing the first board of directors and preparing the Minutes of the First Meeting of the Board of Directors.
  • Preparation of Cooperative Membership Application Agreements in line with the Attorney General’s Guidelines.
  • Preparation of Member Disclosure Documents as required by the Corporation’s Code.
  • Minute Book, Corporate Seal, and Membership Certificates.
  • Filing of the First biennial Statement of Information (Domestic Nonprofit, Credit Union and Consumer Cooperative Corporations).
  • Advice concerning acceptance of members and verification of member qualification under the MMP.

We do not offer tax advice of any kind. Our clients are advised to seek the advice of a qualified Certified Public Accountant familiar with the operation of non-profit business entities, and to adopt good bookkeeping practices.

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