For as long as existing medical marijuana businesses are the only ‘legal’ source for pot in California, they will remain hot property. This is especially true as they stand to receive priority when licensing time arrives. If you own a share in one, you may be thinking of convincing your partners to off-load it. But there is only problem. You have no asset to sell. Take a cuppa of whatever relaxes you while we unpick the situation with input from Hilary Bricken.
The Term ‘Collective’ Does Not Appear in the Legal Lexicon
The situation dates back to 2008, when the California Attorney General stated that making profit from selling medical marijuana was illegal. Setting aside that quaint mind-set, this meant that medical marijuana dispensaries had to be non-profits. This left medical marijuana patients with only one legal workaround. They had to form collectives that barely covered costs.
California law treats these collectives as non-profit mutual benefit corporations, or NPMBC’s. By definition, these have no equity or stock to sell. Any intelligent buyer will run miles from that situation. This is because there is nothing to pay for. Except a quasi-right to a grow-your-own, in a situation that is, at best, somewhat fluid. The only workaround is transfer of rights and obligations of membership.
How Membership Transfer Works with California Non-profit Mutual Benefit Corporations’s
The legislators clearly never intended this to happen easily. Section 7230 of the Corporations Code states:
- All rights accruing from membership of an NPMBC terminate on death
- In the interim, no member may transfer a right or membership in an NPMBC
However, the legislation does allow one loophole. If the NPMBC’s articles allow for it, and the local bylaws permit it, its board may allow membership transfers without limitation. This includes when a member dies, or the non-profit undergoes restructuring. The board may however only change its position on approval of all the members.
This legacy of history means few medical marijuana collectives are set up to operate this way. Hilary Bricken thinks this is because criminal lawyers structured them with a view to averting prosecution. We agree with her conclusion that marijuana NPMBC’s may not be purchased, because there is no substance over which to take title.
Hence, be careful if you have your eye on a California medical marijuana collective, and want to become the sole member in exchange for sweeteners. The local bylaws and the founding statements of the NPMBC must permit this. Or else you could lose your money, and fall foul of the California Corporations Code while you do.