Are Marijuana Businesses Legal in California?

By Jonathan R. Tung, Esq. on August 03, 2016 | Last updated on March 21, 2019

Everyone can feel the changes taking place: marijuana, for better or worse, is gaining wider acceptance amongst the general public across the nation, despite its continued status as a controlled substance under the CSA. But where does this leave weed in the Golden State?

Or more importantly, where does this leave cannabis businesses in California? The law is shaky in this area. Maybe one of the best things lawyers can do is to become at least broadly familiar with the law and understand how we got here.

America Tokes Up

Although cannabis remains on the CSA's list of controlled substances, many states in this nation have allowed occasional use of marijuana at least in some limited circumstances. Some states have essentially decriminalized it, while more than half of the varying states have legalized marijuana's use in some form or another, usually for recreational or medicinal use. In California, legal use of the drug is limited only to medicinal use (so far).

Cole Memo

For reasons that are up to debate, the Department of Justice decided to issue the 2013 "Cole Memo," which essentially cautioned federal prosecutors in the lower courts to adopt a more hands-off approach when dealing with marijuana possession cases. Of course, the leniency of the memo would certainly not apply in those cases in which a criminal defendant engaged in particularly egregious behavior such as selling pot to minors or channeling money to career criminals. Essentially, this was a cooling off of the heat on the backs of casual pot smokers.

Some California Law

In a few months, a good majority of marijuana legal questions and confusion will actually be rendered moot, if California voters finally push Prop 64 into law. But that's in the future. Let's take a look at some of the past law that has gotten us to this point.

Sometime in the mid 90s, voters passed prop 215 (AKA the "Compassionate Use Act") which made medicinal use of marijuana legal so long as its use was prescribed by a physician. As of 2003, the details of Prop 215 have been since fleshed out from which the "Medical Marijuana ID Card" found its birth.

Casual users of marijuana needn't fear huge criminal sanction from law enforcement as public sentiment has leaned more and more on the side of leniency. Now, thanks for SB 1449, possession of less than an ounce of pot is an infraction -- an almost quasi-criminal charge. Violators are not arrested, but they must pay a $100 fine. But if Prop 64 passes later this year, even that could be a thing of the past. And that's where weed storefronts come into the picture.

Marijuana Dispensaries

"Dispensary" is the hot word on lips within the marijuana community, but even lawyers will be surprised to know that it gets no recognition by the state's highest ranking prosecutor: "dispensaries ... are not recognized under the law," a 2008 memo states.

The only places recognized by the state where pot is held in high concentrations are "cooperatives" and "collectives," and these places have to acquire their product through heavily regulated means and channels. And technically, these places can't operate for a profit anyhow.

Currently, the legality of cannabis startups in California is really up in the air. If we were really asked to author an opinion on the subject, we would advise startups in this area to form some sort of entity in order to reduce civil liabilities. The problem is this: until next year, we will not know if doing business in pot is allowable under current law.

Make no mistake, unless potential clients are also medical patients with a valid Medical Marijuana ID card, buying and selling pot in this state is a crime. And fancy tactics like including the words "collective" or "cooperative" in one's articles of incorporation could get both the business and the businesses lawyer in deep trouble. It is a cute trick that could end up costing a lot more than you can afford to pay.

Our advice? Get talk to a lawyer who specializes in this area. Or be that lawyer to a budding (no pun intended) pot entrepreneur and make him hold his horses. Watch developments in the law like a hawk while you put together the required documents for a marijuana business.

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