What is a medical cannabis dispensing collective?

A medical cannabis dispensing collective is an organization operating in compliance with state law and comprised entirely of legally-qualified patients and their primary caregivers that receives medicine exclusively from its members and provides it exclusively to its members. Collectives are sometimes called dispensaries, compassion clubs, or cannabis centers. The exact terminology varies, and terms are sometimes used inter-changeably. I prefer the term dispensing collective to clearly associate theses organizations with California law as discussed below.

Are collectives legal under state law?

Yes. California Health and Safety Code §11362.775 authorizes patients and caregivers to "associate within the State of California in order collectively or cooperatively to cultivate marijuana for medical purposes" [italics added]. Unfortunately, the law gives no further clarification as to what constitutes a collective or cooperative association. The nature of these associations is evolving in step with California law and legal precedents.

In August 2008, the California Attorney General (AG) published guidelines for medical cannabis that state that "a properly organized and operated collective of cooperative that dispenses medical marijuana through a storefront may be lawful under California law," provided the facility substantially complies with the AG's guidelines. You should read "What the Attorney General's Guidelines Mean for Medical Cannabis Dispensing Collectives in California" at http://www.AmericansForSafeAccess.org/AGGuidelines for a detailed discussion of collectives and cooperatives under California law.

Does a collective have to be a nonprofit organization?

California Health and Safety Code Section 11362.765(a) says that nothing in the law authorizes the cultivation of medical cannabis for profit. This statue does not mandate the establishment of a statutory nonprofit corporation as described in California Corporations Code Section 5000, et seq. However, operators may choose to organize a medical cannabis collective as a California nonprofit corporation, as discussed in greater detail below.

Regardless of the organizational structure, a medical cannabis collective should operate in a "not-for-profit" manner. Not-for-profit operation describes the behavior of a business or association that is not operated for a commercial purpose, or to generate profits for its owners. Any business, regardless of its formal structure, can operate in a not-for-profit fashion by reinvesting excess revenue (after salaries and other overhead) in services for members, advocacy for patients' rights, or other noncommercial activity.

The term not-for-profit is sometimes confused with the term nonprofit. A nonprofit corporation is a specific statutory entity organized under California Corporation Code Section 5000, et seq., to carry on a non-commercial activity. Nonprofit corporations include churches, schools, some hospitals, social clubs, and service organizations. Some nonprofits are exempt from federal and state taxes because they do educational, religious, or charitable work. The Internal Revenue Service will not recognize providing medical cannabis as a tax-exempt activity, and state tax-exemption is contingent on federal approval. Therefore, a medical cannabis collective organized as a nonprofit corporation will report and pay tax like a traditional C-Corporation. It is important to remember, however, that a corporation is still a legitimate nonprofit organization under California law, even without tax-exempt status.

Many collective operators choose to incorporate their collectives as California Nonprofit Mutual Benefit Corporations, as described under California Corporations Code 7110,et seq. Doing so gives the collective a bona fide nonprofit identity, something that resonates with elected officials, law enforcement, media, and neighbors. This is a sensible choice for most operators, and increasingly the norm for new facilities.