How to – California Marijuana Dispensary or Smoking Lounge

As a personal injury attorney in California, I have seen many more car, motorcycle, and truck accidents involving alleged marijuana usage since medical marijuana became readily available. I have also seen other issues, including employment law, where an employer won’t hire a prospect due to testing positive for T.H.C.

Even stranger, some cities like Santa Monica have “smoke-free” beaches, streets, etc. So we will have to assume the new C.A. law carves out a “designated area” to smoke weed, but we don’t know. In any event, it’s a $250 fine, so maybe use edibles in Santa Monica? But all of this can raise civil rights, state, local, and federal law, and other issues. The fundamental rule of law over California marijuana is in flux.

The other day, I saw that we have a new weed breathalyzer that detects T.H.C. But unlike alcohol use, inebriation standards for drivers remain unsettled. For example, .08 is the legally intoxicated limit in California in many states.

But for marijuana, whether someone is legally intoxicated is still up in the air. The craziest thing is that, like C.A. gun laws, there is no uniformity from city to city. Because of this, we see many “illegal” operations pop up and get shut down continuously.

The Cat and Mouse Game of Fed v. State?

It is almost like a veritable cat-and-mouse game. Either the feds shut you down and confiscate the goods, or the city does. The legal shops are lobbying to get in with the city, while the Highwaymen are cleaning up with minimal risk.

With that as our basis, I wanted to understand C.A. marijuana law and began researching. Below is everything I learned about California marijuana laws. My study includes information on owning, starting, and operating a marijuana distribution type of organization.*

* CAVEAT: There are many laws, both state and federal, regarding the use, sale, growing, and harvesting of marijuana. Before marijuana became legal for recreational use in California, it was only allowed with a medical doctor’s “recommendation.” Doctors can still rarely legally prescribe marijuana, as it is still illegal under federal law. In any event, modern in California, dispensaries fall into two classes.

  1. Medical collectives.
  2. Recreational sales.

Most of all, state, local, and federal laws come into play, making these operations very complicated. Of particular interest, the risks of being charged, jailed, and property forfeiture for a landlord or tenant are always a possibility. Even if the feds leave your operations alone, individual, more conservative counties still refuse to issue business licenses or land use variances to accommodate marijuana-type functions.

So there is also the risk of being charged civilly and criminally by local authorities, even though California has made it legal to buy, sell, and consume Marijuana-based on the statute and judge-made law.

So if you seek to establish any California marijuana operation, you must speak to a lawyer first. In any event, this outline below should help people understand some of the current problems.

More Information:

As a California marijuana defense lawyer, I wanted to share with you what I have learned about the medical and nonmedical dispensation of marijuana below.

How Did We Get Here?

  • What is the Nexus of California’s Medical Marijuana Laws?

First of all, when I was growing up, marijuana was considered to be a “gateway” drug. In other words, p automatically led to Cocaine and Heroin use. Whether or not that theory has been debunked remains irrelevant at this point. In fact, at light speed, California legislated various laws regarding the medical use, possession, cultivation, and distribution of Medical Marijuana.

So for the last 15 or so years, “Medical” Marijuana has become legal. The underpinnings are below.

1996 – What is the Prop 215 Compassionate Use Act?

So when I was just a young lad, in 1996, Proposition 215 was passed. It was known as the Compassionate Use Act. It focused on exempting marijuana-using patients and their recommending physicians/caregivers from California State’s criminal statutory scheme. (Source.)

Who is “seriously ill” under California’s Prop 215?

California says you are qualified as a marijuana patient if you suffer from the following:

  • AIDS.
  • Arthritic episodes.
  • Anorexia.
  • Certain types of cancer.
  • Chronic pain syndromes.
  • Muscle and other types of spasms.
  • Glaucoma.
  • Migraines.

But it also includes a catch-all dealing with “any other illness for which marijuana provides relief.”

  • 2004 – Senate Bill 420 – The Medical Marijuana Program Act.

Of course, this wasn’t enough for the “Big Brother” State of California. The legislature quickly realized that it could track people under the guise of compassionate use. So naturally, it wanted to create a database of drug users and providers. So it passed SB 420, aka the Medical Marijuana Program Act.

This law created a statewide identification card system for caregivers and “qualified patients.” These cards are valid for one year. As discussed above, cardholders can buy more, grow more, and get more potent strains of the drugs and their extracts. But alas, as discussed, the feds can use this information to steal away your God-granted rights.

What Happened on January 1, 2018, That Changed Marijuana Consumption Laws In The Golden State?

In California, our previously licensed medical cannabis dispensaries received a bit of a gift in many ways. Although the state made recreational marijuana use legal, January 1, 2018, left medical dispensaries untouched by draconian taxes associated with purchasing recreational marijuana. As usual, California overreached and taxed recreational marijuana so high that most users only get a doctor’s recommendation.

California will include a 15% levy on all cannabis sales in the state, including medical pot products, starting in January. Meanwhile, local governments are also adding taxes for sellers and growers that could result in a 70% increase in the price of a small bag of good quality marijuana in parts of the state.

Between state and local taxes, some buyers will see an effective tax as high as 45% on adult-use cannabis in California. Proponents of legalization have long pointed to the collection of state and local taxes on marijuana sales as a big benefit. (Source.)

The remarkable thing about remaining a medical marijuana patient is that you can get much lower prices for concentrates, kief, vapes, and flowers. So it appears that intelligent consumers will go the doctor route to save money.

What are Some Other Downsides and Upsides to Medical Marijuana Purchasers Post 2018?

  • Creating a Record that Can Be Used Against You

The major downside of medical use recommendations is that the user files a record with the store itself. If the feds raid the store, the user could face federal charges. Only recently, Chong of Cheech and Chong did several years in federal prison, for example, for possessing and selling marijuana paraphernalia alone.

So imagine the havoc a ne’er-do-well federal prosecutor could cause with a marijuana user “hit list” like that. Imagine being a celebrity. It could potentially ruin your career and land you in federal prison. In any event, it’s like the wild wild west for new C.A. M.J. operations. Over the next 18 months, the patchwork of new rules and regulations is just kicking in.

GUN CONFISCATION – Federal Law Prohibits Marijuana? – So Beware, Gun Owners!!!

Conversely, a nonmedical dispensary would likely have no paper trail, as a purchase would be more like buying booze.

This is very important considering that:

Federal law (18 U.S.C. § 922[g][1-9]) prohibits specific individuals from possessing firearms, ammunition, or explosives. The penalty for violating this law is ten years imprisonment and a $250,000 fine. Further, 18 U.S.C. 3565(b)(2) (probation) and 3583(g)(2) (supervised release) make it mandatory for the Court to revoke supervision for possession of a firearm. Specifically, 18 U.S.C. § 922(g)(1-9) prohibits the following from “…possessing, shipping/transporting, or receiving any firearm or ammunition: (1) a person convicted of a crime punishable by imprisonment exceeding one year; (2) a person who is a fugitive from justice; (3) a person who is an unlawful user of or who is addicted to a controlled substance;…” [Emphasis.]

  • What is The United States Controlled Substances Act?

Sadly, the feds have an outdated law that has zero rational bases in its present form. Denying all medical reasoning and science, elected officials decided long ago that marijuana was evil and had zero medicinal value. This theory was codified as the United States “Controlled Substances Act.”

Under this Draconian legislative enactment, marijuana is a Schedule I drug.

This means it:

  1. Allegedly comes with a significant risk for abuse with,
  2. Zero medically acceptable medical use in the United States.

Whether or not a person is addicted is a question for an expert. But the fact you are an unlawful user is enough. The bottom line is that anyone who smokes pot risks surrendering their unalienable rights to peaceably keep and bear arms and their physical freedom of ingress and egress peaceably.

  • What About the 10th Amendment?

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively or to the people. Since medicine is not mentioned in the Constitution, many, including California, argue that medication is “reserved to the States respectively, or to the people.” And therefore out of the jurisdiction of Federal law.

The Federal Supremacy Act, with the help of judges, enables the feds to trump the given rights of States. But this is in direct violation of the 10th Amendment, according to many constitutionalists. To many jurists, this is pure common sense. But alas, courts have, in many ways, rewritten the Constitution.

So the issue here is whether marijuana is a federally controlled substance, and it is. Since it is held, the federal government, and not the state, decide what drugs are legal and not legal. And the feds treat M.J. as if it has zero medical uses, despite the fact the F.D.A. approves medical marijuana derivatives for patients. And just like liquor stores, local counties and cities could limit or refuse altogether to license a recreational marijuana operation. So, for now, at least, medical dispensaries previously licensed are somewhat protected from legally operating recreational stores under state law but not federal law.

What Is The Federal Law On Marijuana?

So as discussed, medical marijuana collectives, co-operatives, and dispensaries are illegal federally. In other words, you would violate federal drug laws because things are hunk-dory with the state.

Plus, there are criminal and civil fines associated with federal violations. Also, federal agents can seize property, such as the collective’s inventory. Also, landlords could lose their buildings, for example, not thought out ahead in some extreme cases.

During the Obama years, marijuana law enforcement was lax. But under a more conservative administration, we see more implementation occurring. The old policy was to leave collectives alone that complied with state laws regarding marijuana.

What the future holds is uncertain. But we know the focus must be on removing marijuana from the federal scheme as an illegal drug. Otherwise, collectives, as well as recreational facilities, risk being labeled as criminal enterprises.

What are some advantages to getting your Doctor’s Medical Marijuana Recommendation renewed over Pure Recreational Use?

Although cannabis is now legal for adults 21 and over recreationally, it makes sense to spend $50 to $130 for a doctor’s recommendation to use marijuana.

This is because:

  • Some people are sick, and more stores are available now.
  • A medical recommendation makes it easier to use the hundreds of existing collectives since legalization.
  • It MAY help avoid some taxes and local fees/ordinances at a collective
  • There are options for more potent medicine.
  • Plus, you can grow more plants as a patient.

More “Legal” Stores Coming Soon?

January 1, 2018, likely does not affect 90% of medical marijuana collectives. So for them, the standard remains the same. But if they also go retail, higher prices will be associated with a retail recreational license.

Few, if any, recreational over 21 stores will be open for business. After all, this is still a new endeavor for municipalities and other cities. Hence, exceptionally few adult-use stores will be available immediately to sell commercial cannabis. Some sources indicate that only a few will be up and running in the Golden State.

There are also some issues related to California’s anti-smoking laws. You see, Proposition 64 allows smoking lounges. One problem I noticed is whether or not these will be open-door or closed-door facilities with an outdoor patio, for example.

Lounge Capital?

So assuming state and local anti-smoking ordinances do not torpedo some of the smoking lounge concepts, we will likely be seeing places to smoke blunts popping up everywhere.

Look for Venice Beach, CA, to be the smoking lounge capital of America. In the meantime, medical M.J. cardholders can still smoke at designated medical marijuana facilities.

Do Medical Dispensaries Retain a Considerable Tax Advantage over Statutory Retail Stores?

As noted above, medical patients will still save on state and local sales taxes in some circumstances.

CAVEAT: A paper recommendation from a physician is not sufficient to qualify for this sales tax exemption. (Source.)

The California Medical Marijuana Identification Card exempts qualified patients from paying the state sales tax. Also, it protects those who possess up to eight ounces of the botanical herb. This is seven ounces more than the over-21 recreational limits.

medical ID Card CA MJ

Medical patients who have a state medical marijuana ID card will be exempt from the state sales tax immediately. If you spend more than $100 per month on medicine, it should pay you to get a state ID card. Under Prop 64, the card fees are capped at $100, and $50 for Medi-Cal patients. (Source.)

  • Other Differences Between a Doctor’s “Recommendation” and a “California Medical Marijuana Identification Card.”

As noted, the only way for consumers to get around the new sales tax is a bonafide California Medical Marijuana Identification Card issued by their county health departments. Only they will get the sales tax break. Contrast this with a medical recommendation, which does not offset the new tax.

Assuming you are a qualified patient, you get all this for only a $100 annual fee. But if you are a low-income resident, you can pay $50. So this applies to people getting Medi-Cal health care. But it’s free for indigent county health care recipients. In this case, the county health departments will process the applications. And, of course, the County collects the fees.

  • Card Holders Can Buy More Products?

For some time, card-holding patients could grow at least six plants for personal consumption. Although local laws require medical marijuana patients to identify themselves, the trade-off is that they can use and possess large amounts of the product. So that way, they can buy and transport more than the recreational limit.

Patients can hold eight grams of concentrate or an ounce of cannabis flowers. But be warned, domiciled growers are still subject to county and city codes and ordinances.

Hence, Code Enforcement officers could be seeing an uptick in business. And since Uber and Lyft are helping reduce D.U.I. Arrests, cities, and counties need new forms of revenue. BE WARNED growers and M.J. users.

  • Card Holders Still Get the Stronger Extracts and Products (the “Topicals” and “Edibles” Question)

Now there exist two different cannabis regulatory models. These involve the sale of topicals and edibles.

Now, topicals remain more powerful medically at 2000 mg of T.H.C. Contrast this with 1000 mg of T.H.C. that will be available recreationally. After July 1, 2018, the grace period that lets edibles have more than 100 mg of T.H.C. ends. After that, medical, ly, and for recreational use, edibles cannot have more than 100 mg of T.H.C. that must be divided into 10 mg per part serving.

  • What are My Anticipated Startup Costs to Open a California Marijuana Medical Dispensary?

Mainly, the larger the operation, the more costly. But obviously, you’ll likely have more luck in an unincorporated area than a city like Newport Beach, for example.

Ok, so now comes the fun part. How does one go about opening a marijuana dispensary? Is it even affordable or intelligent, considering that the feds can raid you anytime? So no matter what, it will cost you now or later.

My research from interviewing collectives and store personnel shows a vast array of prices and costs depending mainly upon the GEO location of the distribution outlet. For this discussion, we will address legal and illegal routes. Going lawful means a dispensary costs $20 to the grand U.S, upwards of a half-million dollars.

Mainly, the larger the operation, the more costly. But obviously, you’ll likely have more luck in an unincorporated area than in a city like Newport Beach. Most of this is politics.

But one thing politicians, conservative or leftist, can’t resist is lobbyist re-election money. So look for lobbyists gaining a foothold in the more traditional communities of Orange County, for example. You want a favorable city council vote. I, you, must cut checks to both parties am just honest here.

  • So What are Some of the Fixed Costs?:

  1. Like the state, municipal, city, and county fees, assuming licenses for lease, each city and province will likely have a statutory scheme codified in advance. Look for these licenses to be enforced by a code enforcement officer in a lottery situation. This will probably resemble beer, wine, and hard alcohol permits.
  2. Costs of building out the location. Some lucky tenants can get tenant improvement monies for signing a long-term lease. (T.I. Money)
  3. Costs of cultivation. This includes germination, quality seeds, growing, topping, enriching, harvesting, drying, and distributing.
  4. Costs of legal counsel and paralegals, law clerks to deal with all the problems inevitably arise.

  • So What Exactly is a California Medical Marijuana Dispensary?

Believe it or not, California has not codified what a medical dispensary is or isn’t. The legislature never explicitly defined what a dispensary or collective is. Additionally, M.M.P. is the only thing that guides us at all.

The California Health and Safety Code 11362.775 is the only thing we have to guide us as lawyers. This section asks caregivers to “associate within the State of California in order collectively or cooperatively to cultivate marijuana for medical purposes.”

Below are some of the many rules and regulations to do that legally:

  1. Incorporate.

Collectives or so-called “cooperatives” technically are not supposed to be profit based. So to do it right, you must structure a non-profit corporation for the benefit of the collective members. So here there are two options before us. You can file articles of incorporation under the California Corporations or under the California Food and Agricultural Code. Nonprofits mean just that. You cannot make a profit. Management fees are typically supposed to be how the owners, growers, and cultivators are paid.

2. Get Properly Licensed and Administered.

First of all, despite what many sea lawyers will tell you, medical marijuana is taxable. This means collectives are supposed to collect local and state sales and other applicable taxes. This means you must obtain a “Seller’s Permit.” (Learn more here). But remember as discussed above, each city will be different. So even if you are in compliance with State law, you may still need a business license, for example. Sometimes you may need to request a zoning variance. This is another reason why lobbying will become more important for future stores.

Administration is so so important. This is because there are a veritable plethora of regulations under California law that must be complied with. Otherwise, there is no way to demonstrate you are in compliance with the regulatory scheme. The key is to show you are only dealing out marijuana for purely medicinal reasons.

What are Some Ways You Can Show You are Complying With State Law as a Collective?

Make Sure it’s “Members Only”:

Buying and selling to or from non members is strictly prohibited. Also, under California law, only lawful patients and medical providers may grow marijuana. In fact, the collective is a way to bring the medicine to market and to facilitate transactions between members. This is probably why they are supposed to be designated as non profit corporations.

  • Sign in Sheets: Most hospitals have sign in sheets with waivers and all sorts of requirements to prove you are who you say you are. So with a new patient, you need to make sure they are vetted as a holder of a legitimate and UP TO Date recommendation or Medical Marijuana ID Card. Make certain you contact the recommending physician to verify he or she is legitimate.
  • Keep Adequate Records:Make sure and obtain copies of ID’s, Medical ID cards, recommendations and anything else you need to prove these buyers are medical patients. Obviously, you should have each employee sign a declaration of confidentiality, and that binds them not to engage in the illegal sale or distribution of marijuana. Anyone who breaks the rules is out! Cover your butt and track coming and outgoing marijuana. Document same. Be smart.
  • Don’t Fall Into the Money Trap: This is where we see a lot of illegal operations making a killing. It fact, under the law a collective must either provide free marijuana or distribute it in exchange for services akin to a commune. The issue here for most operation is that the fees charged must be reasonably calculated to cover just the operating expenses such as overhead, etc.the , or any combination of these situations.

Understanding The Risk Of Selling Marijuana In California.

  • Try and Reach out to Law Enforcement and Hire Security Personnel: The smart move for a growing legal and distribution operation is to get to know the local mayor/police. It also makes sense to get top-notch security guards. After all, it is reasonably foreseeable that an unsavory character could potentially rob a collective. This would potentially leave all those patients exposed to gunfire or a knife attack. Try and get in tight with neighborhood watch and establish your collective as “above board.”
  • Hire an Injury Lawyer for Injury Risk Management: Believe it or not, employment and customer personal injury claims are among the most significant risks for a high-traffic and busy place like this. First, many insurers are not interested in insuring businesses violating federal law. Second, you need liability insurance to protect the corporation and its officers.

After all, one wrong slip and fall or sexual harassment lawsuit could tank your entire operation and even chase away potential investors. Many cities and counties will require you to show you have an insurance bond at a minimum. Of course, hiring an injury attorney to walk the location and help you write policies and systems will go a long way toward mitigating risks. An example would be writing up a procedure for weekly tailgate safety meetings. If you would like to speak to an accident lawyer in Los Angeles, Michael Ehline is available for an appointment at (213) 596-9642.

How Do I Start Up A Recreational “Over 21” Marijuana Store?

So how exactly do you start up an over 21 adult-use store? Well, this all centers around the “Adult Use” License. Many California dispensaries are applying for these to sell to recreational-use consumers. They will also need to deal with all the local “red tape.” So it looks like the medical stores have the most distance out of the gate.

Insofar as startups go, it’s the same as setting up a medical dispensary, minus some restrictions regarding medical patients.

So far, since January, only West Hollywood has had stores licensed to sell to the over 21 crowds with valid identification. Think about that. So WeHo nailed it. The bottom line is once you find a city to set up shop, you still need to get legal to be for profit.

New for-profit law beginning in 2018?

Cannabis businesses that have already received any required licenses or permits from their local jurisdiction may apply for state licenses to operate a for-profit from various agencies.

Businesses operating under these state licenses can choose any form of solid business structure. They can work on a for-profit or not-for-profit basis. They are not eligible for California franchise and income tax exemption, as they do not meet the requirements described in Internal Revenue Code Section 501(c) or California Revenue and Taxation Code (R&TC) Section 23701. (Source.)

As emphasized above by the author, over 21 stores may operate as a for-profit if they so choose. As a lawyer, I can say that non-profits require much more work to run and administer, especially with medicinal use issues at play. So look for tax-starved cities to liberally issue the various local licenses to make this happen first. With the addition of smoking parlors, there could be a renaissance of the more progressive yet disenfranchised cities.

What About Smoking Lounges?

As discussed, California and almost every city have anti-smoking ordinances. So with the legality of marijuana, people need a place to smoke without fear of fines or arrest by local officials. This means cities will likely issue permits to those lucky few businesses who can navigate all the startup red tape or those with existing locations.

Part of Proposition 64 included a ban on all public marijuana consumption. Also, private owners retain their rights to allow marijuana on their property. But I would look at California civil rights laws and medical rights acts to steer landlords towards compassionate use of their properties.

Below are a few of the smoking lounge rules:

First, California does not require a state license to open a lounge unless you also sell marijuana products. So if, for example, you opened one next to a collective, you’re in business. Also, the general public cannot see you smoking. So forget about setting up an outdoor smoking patio unless it gets hidden from passersby. One method of doing this could be tinted glass two-way mirrors or a large fence. Ultimately the city code enforcement people will have to sign off on this stuff. Also, sorry, bars, the state won’t let you drink and smoke simultaneously! So a smoking lounge in a bar, bad, next to a bar, maybe ok.

And last but not least, rooms cannot do business within 600 feet of any school.

Can Ehline Law Firm Help me Find a Dispensary or Retail Outlet that is Up and Running for a Quick Purchase?

MAYBE! A variety of companies will build a “turn-key” dispensary for you. Some of these are at pre-existing locations and doing well. So this means that you must “turn the key” to open the door, and the establishment is ready for you to run. The medical stores will now sell good stuff at a premium. Why not? They can tap into the commercial market as well. But lawyers like me can help with the transactions. And we can teach accident avoidance and defense against negligence and employment law claims.

You can find entrepreneurs who broker deals like this if you know who to trust. They typically promise to:

  1. file all necessary paperwork on your behalf and
  2. make sure that you comply with all laws.

The cost for these medical marijuana dispensaries before 2018 ranged from $100,000 – $200,000.

Seek An Experienced Attorney

But before you purchase this type of dispensary, you should consult with your own California marijuana attorney to ensure the accuracy of the company’s information. After all, why are they selling? Do they have any strikes against their license?

This can always present issues. What if the store is already under federal investigation, or was the building just raided by law enforcement? What are you buying? Debt? Or is it turn-key? In other words, are the sellers savory or unsavory in their efforts to sell? A lawyer can delve into the minutia and help negotiate a contract and escrow that protects you. But in the end, it’s caveat emptor. (buyer beware.)

Discussed above were California’s rules and regulations for medical and for-profit marijuana stores. Also discussed were the risks versus the rewards of delving into the California marijuana scene. In conclusion, buying, selling, growing, or distributing Marijuana in California is a task for only the bravest of people.

An excellent lawyer and a little common sense can help mitigate some of these risks. I hope you enjoyed this piece, and I will update it as more information comes to fruition.


Michael Ehline

Michael Ehline is an inactive U.S. Marine and world famous legal historian. Michael helped draft the Cruise Ship Safety Act and has won some of the largest motorcycle accident settlements in U.S. History. Together with his legal team, Michael and the Ehline Law Firm collect damages on behalf of clients. We pride ourselves in being available to answer your most pressing and difficult questions 24/7. We are proud sponsors of the Paul Ehline Memorial Motorcycle Ride, and a a Service Disabled Veteran Operated Business. (SDVOB.) We are ready to fight.

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