Seven Requirements for Running a Lawful California Medical Marijuana Collective

by Mitchell Luke Abdallah on Sep. 02, 2014

Government Public Interest Law Business  Administrative Law Industry Specialties  Agriculture 

Summary: This article advises on the requirements for running and maintaining a lawful California Medical Marijuana Collective/Dispensary.

Seven Requirements for Running a Lawful California Medical Marijuana Collective


The Medial Marijuana Program Act provides for a defense against criminal prosecution for someone operating a medical marijuana collective or cooperative in California.  But such business operators must follow a strict set of guidelines in order to stay within the bounds of this law.  A recent California court decision analyzed the important set of guidelines that must be followed in order for one to properly assert the Medical Marijuana Program Act defense.[1]  Below are the seven main requirements discussed in the decision. 


  1. Create a non-profit corporation.


Medical marijuana collectives and cooperatives are forbidden from making a profit in California.  That is why most medical marijuana collectives operate as nonprofit mutual benefit corporations.  You must file articles of incorporation with the California Secretary of State and paying the filing fees in order to set up this type of business entity.  Click here to view the necessary Secretary of State application.


  1. Comply with all Government licenses and permits.


There are a number of different licenses required the by State and local governments you must obtain before you begin lawfully selling medical marijuana in California.  First, you must obtain a business license from the city or county within which you intend to operate.  This assumes the city or county allows medical marijuana dispensaries or collectives to operate within its jurisdiction as they may now prohibit such facilities pursuant to a recent California Supreme Court decision[2].   


Additionally, all sales of medical marijuana are subject to tax and you must obtain a seller’s permit from the State Board of Equalization.  Failure to obtain a seller’s permit prior to the date the first tax return is due will result in penalties and interest charges.  Check out this Special Notice to learn more about the taxation of California medical marijuana sales.


  1. Have a thorough membership screening process.


All members must be registered thoroughly screened each time they make a purchase.  This means they must complete a membership application and show their active medical marijuana card prior to being granted access to the dispensary.  Most collectives keep an electronic database of its members in addition to a paper filing system.  Keeping valid membership records is a vital element of qualifying for the MMPA defense. 


Collective staff should also verify that the proscribing doctor identified on the patron’s medical marijuana card is validly licensed and that they in-fact have proscribed medical marijuana to the patient.  Many proscribing doctors have electronic verification services on their websites like this one.


  1. Keep detailed accounting records.


Perhaps the most vital element of running a legitimate dispensary is keeping and maintaining accurate accounting records.  When it comes to running a dispensary, it’s not a matter of if the dispensary will be audited, it’s a matter of when.  Therefore, you must keep all receipts and maintain an accurate accounting of all taxable sales for both cash and credit card purchases.  Any shortages or missing receipts could result in enhanced scrutiny and, worse yet, criminal allegations.  


  1. Set reasonable membership fees.


The law allows dispensaries to collect a fee from members purchasing marijuana to reimburse the entity for overhead costs and operating expenses.  There must be an objective and rational relationship between the fees collected from the members and the costs associated with the dispensary.  Of course, these fees may fluctuate depending on the amount of members and the type of medical marijuana provided through the dispensary. 


  1. Product amount must be tied to membership base.


There is no set limitation on the amount of medical marijuana a dispensary is entitled to have on hand.[3]  Rather, the stock of marijuana “should be reasonably related to the patient’s current medical needs.”[4]  This can be equally confusing considering there is no set amount each patient is entitled to possess.  However, collectives that keep and maintain accurate membership records will be able to reasonably estimate the amount of medical marijuana they can safely maintain. 


  1. Employ effective security measures.


Last but not least, legitimate dispensaries must incorporate substantial security measures to screen qualified members and prevent unapproved patrons from purchasing medical marijuana from their facility.  Effective security measures may include a separate screening where members and new patrons can be asked to produce their medical marijuana card and provide their physician’s recommendation before being allowed to view and purchase the medical marijuana.


As you can see, the compliance measures necessary to operate a legitimate marijuana dispensary are vast and confusing.  I have helped several successful entrepreneurs navigate through this complex process and provide them with ongoing legal advice in this growing and complex business niche.  Contacting an experienced attorney like me is a necessary step to ensure compliance and confidence. 

[1] People v. Colvin (2012) 203 Cal.App.4th 1029.

[2] City of Riverside v. Inland Empire Patients’ Health and Wellness Center, Inc. (2013) 56 Cal.4th 729.

[3] People v. Colvin. supra,  203 Cal.App.4th at 1042.

[4] People v. Trippet  (1997) 56 Cal.App.4th 1532, 1549.

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