The Medicinal Marijuana Business and The Impact of CALIFORNIA STATE LAWS



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.

California law allows cultivation of medical marijuana by certain non-profit marijuana collectives or cooperatives (dispensaries) legally operating and give it to patients and their primary caregivers, or sell it “at cost.”

A Very Common Misconception – California Has NOT Legalized Marijuana

Indeed, California’s medical marijuana laws have been challenged unsuccessfully in court on the ground that they are preempted by the Controlled Substances Act (CSA). Congress has provided that states are free to regulate in the area of controlled substances, including marijuana, provided that state law does not positively conflict with the CSA. Neither Proposition 215, nor the MMP, conflict with the CSA because, in adopting these laws, California did not “legalize” medical marijuana, but instead exercised the state’s reserved powers to not punish certain marijuana offenses under state law when a physician has recommended its use to treat a serious medical condition.

Californians who obtain and use marijuana for specified medical purposes upon the recommendation of a physician are not subject to certain criminal sanctions.  The Attorney General’s office recommends that state and local law enforcement officers not arrest individuals or seize marijuana under federal law when the officer determines from the facts available that the cultivation, possession, or transportation is permitted under California’s medical marijuana laws.  Subject to the requirements of California code sections Qualified Patients or caregivers who associate as collective or cooperative to cultivate marijuana for medical purposes shall not “on that sole basis” be subject to criminal sanctions.  Physicians may lawfully issue a verbal or written recommendation under California law indicating that marijuana would be a beneficial treatment for a serious medical condition.


Possession and Cultivation Guidelines

A single patient is entitled to possess 8 oz. of dried marijuana, and may maintain no more than 6 mature or 12 immature plants per qualified patient.

But a California nonprofit operating under the statutes may have multiple patients combine their needs and resources and have a single grow for all of them.  These “cooperatives” (or sometimes “collectives”) are regulated under California law, and they are perfectly legal, provided they operate within certain parameters. As is the case when growing for your own personal use, a collective grow operation should grow no more than is medically necessary for the members of the cooperative. However, there is no limit to the number of people who can be members, and not all members have to participate in the actual cultivation.

The quantity possessed by the patient or the primary caregiver, and the form and manner in which it is possessed, should be reasonably related to the patient’s current medical needs. What precisely are the “patient’s current medical needs” must, of course, remain a factual question to be determined by the trier of fact (in other words a judge or jury). One (but not necessarily the only) type of evidence relevant to such a determination would be the recommending or approving physician’s opinion regarding the frequency and amount of the dosage the patient needs[i].

Collectives and cooperatives may cultivate and transport marijuana in aggregate amounts tied to its membership numbers.


Return of Seized Medical Marijuana:

The old policy allowed law enforcement to take and keep people’s cash and property on the pretense of things like the scent of marijuana, even if none is found in their possession. Since the proceeds go directly to local police budgets, some argue that this was one of the primary reasons for law enforcement’s continued opposition to marijuana policy reform.

If a person whose marijuana is seized by law enforcement successfully establishes a medical marijuana defense in court, or the case is not prosecuted, he or she may file a motion for return of the marijuana. If a court grants the motion and orders the return of marijuana seized incident to an arrest, the individual or entity subject to the order must return the property.


Permissible Reimbursements and Allocations: Marijuana grown at a collective or cooperative for medical purposes may be:

a) Provided free to qualified patients and primary caregivers who are members of the collective or cooperative;

b) Provided in exchange for services rendered to the entity;

c) Allocated based on fees that are reasonably calculated to cover overhead costs and operating expenses; or

d) Any combination of the above.


Non-Profit Operation: Nothing in Proposition 215 or the MMP authorizes collectives, cooperatives, or individuals to profit from the sale or distribution of marijuana.  Making sure you structure the correct business formation is important to the future success of your business.


Business Licenses, Sales Tax, and Seller’s Permits: The State Board of Equalization has determined that medical marijuana transactions are subject to sales tax, regardless of whether the individual or group makes a profit, and those engaging in transactions involving medical marijuana must obtain a Seller’s Permit.


Indicia of Unlawful Operation: When investigating collectives or cooperatives, law enforcement officers should be alert for signs of mass production or illegal sales, including

(a) excessive amounts of marijuana,

(b) excessive amounts of cash,

(c) failure to follow local and state laws applicable to similar businesses, such as maintenance of any required licenses and payment of any required taxes, including sales taxes,

(d) weapons,

(e) illicit drugs,

(f) purchases from, or sales or distribution to, non-members, or

(g) distribution outside of California.


You cannot be arrested for cultivating marijuana unless a law enforcement officer has reason to believe that you are otherwise violating the law (for instance, by cultivating more marijuana than is consistent with reasonable medical use, or possessing it with the intent to sell it, or carrying an excessive amount of cash around).


New Laws May Confuse Officers and Other Officials

Federal adopt ion of property seized by state or local law enforcement under state law is prohibited. The prohibition on federal adoption includes, but is not limited to, seizures by stale or local law enforcement of vehicles, valuables. and cash, which is defined as currency and currency equivalents, such as postal money orders, personal and cashier’s checks, stored value cards, certificates of deposit, travelers checks, and U.S. savings bonds.

This order does not apply to (I) seizures by state and local authorities working together with federal authorities in a joint task force; (2) seizures by state and local authorities that are the result of joint federal-state investigations or that arc coordinated with federal authorities as part of ongoing federal investigations; or (3) seizures pursuant to federal seizure warrants, obtained from federal courts to take custody of assets originally seized under state law.


Hire a lawyer. Because of the unique legal situation medical marijuana dispensaries face, it’s important to seek professional legal advice before purchasing or opening a dispensary. A lawyer will also be able to help you secure the appropriate entity formations, and other relevant documents and systems in place for a seamless business strategy.

  • For example, in some states you may be required to classify your dispensary as a “non-profit organization”

A not-for-profit is stated in the Attorney General guidelines.  A not-for-profit organization is an organization that does not distribute its surplus funds to owners or shareholders, but instead uses them to help pursue its goals.  This means you can still pay yourself and employees a reasonable salary and have your expenses covered for the business.

Our Lawyers are familiar with Medicinal Marijuana Nonprofits and those laws facing the Medicinal Marijuana industry. Many business owners have no idea the amount of power they have, when they are being advised by a legal representative in these cases. A lawyer will look at the complete situation, and then advise you on the different circumstances that are suitable for your situation.

For a free consultation regarding any issue that you might have with the Medicinal Marijuana business, call Legal Solutions 2 U today at 855 – 77 LAW 2 U (855-775-2928)





[i] Littlefield v. County of Humboldt (2013) 159 Cal.Rptr.3d 731, 218 Cal.App.4th 243. (holding that the amount of marijuana that may be possessed under the Compassionate Use Act (CUA) is a flexible standard based upon the individual user, it is not without reasonable limits that include consideration of quantity.