Per the California Attorney General’s Guidelines:
“Under California law, medical marijuana patients and primary caregivers may “associate within the State of California in order collectively or cooperatively to cultivate marijuana for medical purposes.” (§ 11362.775.) The following guidelines are meant to apply to qualified patients and primary caregivers who come together in order to collectively or cooperatively cultivate (physician-recommended) marijuana/cannabis.
Business Forms: Any group that is (a.) collectively or (B.) cooperatively cultivating and distributing marijuana for medical purposes should be organized and operated in a manner that ensures the security of the crop and safeguards against diversion for non-medical purposes. “
The attorney’s general guidelines were developed to help cooperatives and collectives operate within the law, and to help law enforcement determine whether they are doing so.
(a.) Collective
“A collective is a group of entities that share or are motivated by at least one common issue or interest, or work together on a specific project(s) to achieve a common objective”. (i) When you hear most people talk about a Collective it will either be incorporated entity such as a Mutual Benefit Corporation (which requires incorporating with the State of California), or a less structured Collective Association (or Unincorporated Nonprofit Association). California law also allows for the creation of a Consumer Collective Corporation.
(b.) Cooperative (Co-op) – is a “union of individuals, commonly laborers, farmers, or small capitalists, formed for the prosecution in common of some productive enterprise, the profits being shared in accordance with the capital or labor contributed by each.” 164 N.W. 804, 805. There are no specific requirements for incorporating or getting acknowledged by the state. A cooperative can be incorporated or organized and an LLC, S-Corp, or C-corp but is not required to do so (similar to a Collective Association). The advantage of incorporating is that the members will not be personally liable for loss or damages.
Cooperative corporations are “democratically controlled and are not organized to make a profit for themselves, as such, or for their members, as such, but primarily for their members as patrons.” (Id. at § 12201.) (iii)
The purpose of these entities is basically the same – to come together to grow and obtain medical marijuana in California. As noted you can register these entities with the state or take the less regulated route and not incorporate. Profit is not legal in California regardless of the entity you choose to use.
Non-profit Mutual Benefit Corporation(C- Corp)
i. A non-profit Mutual Benefit Corporation is the best entity for forming a Collective dispensary in my opinion. There are a number of operational requirements a Collective must follow to remain compliant with state law. This entity protects the board of directors and management from having personal liabilities and also allows the Collective to carry out the functions of a regular business (i.e. opening bank accounts, employing workers and properly filing payroll taxes, filing an annual income tax return), etc).
If you are running a low-key delivery service you might be able to function under one of the less regulated entity structures. Some organizations form this type of entity to bring less attention (and try to stay below the radar of various state agencies). Obtain professional legal advice from an attorney specialized with these entities and document everything extremely well.
A primary caregiver is a person who is designated by a qualified patient and “has consistently assumed responsibility for the housing, health, or safety” of the patient. (§ 11362.5(e).) This model isn’t applicable for most medical marijuana providers unless they meet the strict definition provided.
The highly instrumental case that addressed the caregiver model was the People v. Mentch (California Supreme Court Nov 24, 2008). It was decided that caregivers need to be doing more than just providing medicine. The California Supreme Court held that a person is not a “primary caregiver” under the Compassionate Use Act merely because they are in charge of getting someone’s pot. (iv)
Given that “primary caregiver” is defined in the statute as “the individual . . . who has consistently assumed responsibility for the housing, health, or safety of that person,” this holding isn’t all that surprising. Providing medical marijuana doesn’t necessarily mean that you’ve undertaken the responsibility for a person’s “housing, health, or safety,” much less that you’ve done so on a consistent basis.
That holding is all that the California Supreme Court needed to say to decide this case. But it went further, and unanimously held that not only does a “primary caregiver” under the Compassionate Use Act have to be what we might traditionally call a primary caregiver, but further held that this relationship must also have been commenced at or before the provision of medical marijuana. The Court stated: “[W]e conclude a defendant asserting primary caregiver status must prove at a minimum that he or she (1) consistently provided caregiving, (2) independent of any assistance in taking medical marijuana, (3) at or before the time he or she assumed responsibility for assisting with medical marijuana.” (iv)
I. Wikipedia, “Collective” & “By-law” definition, Wikipedia Foundation, Inc., June, 16 2011
II. Barons Law Dictionary, “Cooperative Association” definition, Answers Corporation, June 16, 2011 http://www.answers.com/topic/cooperative-association#ixzz1XmA4wsni
III. Got Weed Blog, “Cooperative cultivation” definition, GotWeedWordpress.com, June 20, 2011
IV. Supreme Court of California, People v. Mentch, FindLaw, January 21, 2011