A Shift for California’s Medical Marijuana Non-Profits?

There is no question that medical marijuana can be big business. There is of a lot of money to be made for those already in the industry and those still looking to get involved. However, while it can be very profitable, most of these medical marijuana grow operations and dispensaries in areas like Los Angeles and Orange County are technically registered as not-for-profit entities such as medical marijuana collectives.

The reason for this is because when the 1996 Compassionate Use Act legalized medical marijuana in California, it required all businesses to be for treatment only, and they could not earn a profit. While on the one hand it sounds good to be a non-profit organization, those involved in the medical cannabis business were obviously not eligible for Federal 501 (C)(3) status, so they have to pay federal taxes. They also have to pay state taxes.

This is made even more complicated when you consider the fact that these companies are not allowed to have bank accounts, so employees literally walk into tax offices with stacks of cash the tax office personnel say smells like marijuana.

Now that the state has passed a series of new regulations, it seems that these companies will be able to register in the more traditional forms of organizations like a limited liability company, corporation, and others, according to a recent news feature from Above the Law. It should also be noted that these non-profit marijuana organizations are currently set up to have to pay sales tax to the state, unlike other organizations which have state and federal tax exempt status. This means the employees and owners can receive a salary, but it also means they are forced to be non-profit companies without the benefits usually afforded to these companies, including tax exemption.

Once the new regulations are fully in place and businesses are allowed to get new licenses, these companies will be able to transition into standard companies, but there it will be even more complicated than it is for traditional companies, due to the many state and federal regulations and laws that must be followed.

For this reason, the best thing you can do if you are planning on turning your California Mutual Benefit Marijuana Cooperative (MBMC) into a more traditional form of business organization, you should speak with an experienced Orange County medical cannabis attorney prior to completing any paperwork. While many business owners are hesitant to spend money on legal fees when they aren’t sure how profitable their new business will be, it is often more cost effective to do things right in the beginning than finding yourself in trouble later.

Many people do not realize that even in a place like Los Angeles, which is pretty supportive of medical marijuana, it is not hard to accidentally violate state and federal laws, and that can not only cost you a lot of money, it might even result in criminal charges. This is evidenced by the fact that people are still being prosecuted for distribution of marijuana and given extremely harsh federal sentences. We have recently heard of a man who was sentenced to life in prison after a marijuana conviction. While this seems ridiculous, it does happen on a somewhat regular basis.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, collectives, patients and those facing marijuana charges. Call us at 949-375-4734.

Additional Resources:

A Pain In The Bud: Restructuring A (California) Medical Marijuana Non-Profit, February 22, 2016, Above the Law, By Hilary, Bricken

More Blog Entries:
California to Earn Huge Income from Taxes Should Legalized Marijuana Pass, Jan. 18, 2016, Los Angeles Marijuana Lawyer Blog