A Los Angeles appellate court handed down a decision last week that could dramatically change the way that dispensaries conduct business in the state. If you operate or grow for a collective, you must be aware of the new rules (or new interpretation of the old rules).
California law allows qualified patients to form non-profit organizations for the purpose of cultivating and distributing marijuana among themselves. The authors of the law envisioned a group of patients who would pool their resources and designate one member of the group to cultivate all of the medicine for the entire club. Members of the club would then compensate the club for the value of the medicine that each member consumed, and the club would compensate the grower for his expenses, plus the value of his time, labor and skill. Money may change hands during these transactions, but clubs were -- and are -- prohibited from acting on a for-profit basis.
Defendant in this case, Brian Mitchell, was the designated grower for a collective in Los Angeles. He was a member of the club and had proper documentation to prove that he was both a qualified patient and a duly-designated cultivator. Mr. Mitchell established his own corporation, Herbmetics, Inc., for the purpose of cultivating medical marijuana on behalf of the club. He obtained seller's permits in his own name from the state Board of Equalization and paid taxes as required.
Mr. Mitchell was arrested and convicted for illegally cultivating marijuana in state court. At trial, it was determined that the club to which he provided his cannabis, "Keeping It Medical", was improperly organized as a for-profit corporation. Since K.I.M. operated for profit, a judge ruled that Mr. Mitchell was not entitled to rely upon the limited immunity provided under California's medical marijuana laws. He was convicted, and a court of appeals recently affirmed the conviction.
The court did a very poor job of explaining their reasoning in this case. I've read the opinion, and I'm still not clear on what the judges determined to be the deciding factor. I spotted several issues where the judges seemed to focus their attention, but they never gave any indication as to what they found most compelling -- or how someone might avoid those pitfalls in the future. Here are some of the factors that I think steered the court's judgement:
-The fact that the club itself, "Keeping It Medical", was organized as a for-profit corporation (rather than a cooperative, a collective, or a not-for-profit mutual benefit corporation). Since California's medical marijuana laws allow patients to collectively cultivate marijuana on a not-for-profit basis, the court found that individuals or clubs who operate on a for-profit basis may not avail themselves of the limited immunity provided under HS 11362.775, even though the defendant was a member / vendor and not the owner or operator of K.I.M.
-The fact that Mr. Mitchell formed his own corporation, Herbmatics, Inc., and sold his product to ANOTHER corporation, K.I.M. The law doesn't say anything about this type of arrangement, but courts and law enforcement agencies frown upon dealers who sell outside of their own non-profit organization. According to the California Attorney General's interpretation of the law, medical marijuana clubs may cultivate their OWN cannabis, but they should not buy or sell medicine outside of their own closed-loop distribution network. Again, the law is silent here, but medical marijuana entrepreneurs who grow under one corporate name and sell to another corporation will enjoy fewer legal protections than clubs that maintain ownership of their own plants from seed to flower.
-The fact that the Mr. Mitchell's written agreements with K.I.M. provided for a set annual salary, regardless of his costs or the quantity of cannabis that he provided to the club. As discussed above, money may change hands during these types of transactions, but parties must be able to demonstrate that the costs of the marijuana are reasonably related to the grower's expenses. If the grower is making significant income but cannot prove the value of his costs and labor, he's going to have a hard time defending himself in court.
Expect this case to work its way up to the State Supreme Court, where the rules are likely to get flipped on their heads again. Until we get a more coherent set of laws on the subject, more people like Mr. Mitchell are likely to end up behind bars for activities that they honestly believed were protected under the law.
Speaking of....
California might soon get a more coherent set of medical marijuana laws! The State Senate Health Committee recently approved SB 1262, a proposed set of regulations to govern medical marijuana here in California. The new regulations had been opposed by CA NORML, which was primarily concerned with some provisions that would have limited the ability of doctors to recommend marijuana to their patients. After those provisions were dropped from the bill, CA NORML Director Dale Gieringer declared that it "was on the right track".
If passed by the full Senate and State Assembly, the bill will require doctors who recommend marijuana to also discuss possible side effects of the drug with their patients. They would also be responsible for conducting appropriate examinations and follow-up consultations with patients. It would impose penalties for doctors who fail to properly examine patients before recommending marijuana.
The bill will explicitly allow cities and counties to restrict or prohibit marijuana dispensaries within their borders. It will establish systems for licensing cultivation sites and for assuring quality and purity of cannabis sold at dispensaries. The law will also require dispensaries to adopt certain security measures to prevent thefts.
Medical marijuana advocates believe that the regulations are valuable to clarify the legal protections for growers, transporters, dispensary operators and others involved in this budding industry. The federal government has also pledged to respect state marijuana laws where there is a "strong and effective" regulatory scheme in place. Until now, however, California's regulatory scheme has been neither strong, nor effective. This absence of clear guidance has exposed patients to federal raids. Hopefully, a clear and concise set of rules in California will help seriously ill patients access their medicine while reducing crime and the other harms associated with our great social experiment.
If you have questions about medical marijuana in California, call The Law Offices of John W. Bussman for a free consultation. (714) 505-2468. Thanks for reading.
Last month the Drug Policy Alliance announced it was dropping its plans to gather signatures for a recreational legalization initiative, ostensibly to focus its considerable resources on 2016. Many legalization supporters always liked 2016 better because it's a presidential election year, when turnout, especially among the young, will be greater. Most of the proposed 2014 initiatives sought tax and regulate marijuana like alcohol. Thanks.
ReplyDeletePaul D. Mitchell
I was talking with my friend Jake P. yesterday and he told me that marijuana being grown in northern counties under the state's medical pot law is not being used for legal, personal use, but for sale both in California and states where pot is still illegal. Some drought-stricken rivers and streams in Northern California's coastal forests are being polluted and sucked dry by water-guzzling medical marijuana farms.
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