Marijuana Sales in California: What Is A Fair Price For Weed?

*****People v. Sandercock is currently being appealed so cannot be considered as conclusive law at this time. I will update the blog upon the final criminallawdecision of the court.*****

Purchasers of medical marijuana in California can find a large variety of strains and prices in the marketplace for weed. As with any business, profit or non-profit, prices are generally set according to the quality of the product, the quantity to be purchased and the costs of doing business. There is a considerable variance in prices as can be seen from any of the websites or phone apps that advertise this market. It is not unusual to see prices of $50 for an eighth of an ounce and $120 for a quarter ounce of marijuana. But are these prices permitted by law given that providers under the medical marijuana laws in California must be non-profit?

Under the recent California case of People v. Sandercock (2013) , Cal.App.4th [No. B238858. Second Dist., Div. Six. Oct. 16, 2013], the answer is no. This answer is bad news for any seller of marijuana in California trying to comply with State law.

The basis for the Court’s ruling is that sales for profit are not allowed under the Compassionate Use Act (CUA) or the Medical Marijuana Program Act (MMPA). Thus, the Court reasons that any retail price for marijuana is a sales for profit. In the words of the Court: “when a [co-op or collective] member pays for marijuana, the defendant must show that the member paid no more than the member’s proportionate share of the actual cost of cultivating and distributing the marijuana, and that there was no profit for the collective, cooperative or any individual. That the sales price is limited to the member’s proportionate share of the cost and that no person or entity profited from the sale, are crucial to show that the purchaser was associated for the purpose of collectively cultivating marijuana.” The Court’s failure to define profit, non-profit or retail adds to the confusion of this unwieldy rationale.

The Sandercock case involved a prosecution of several medical marijuana businesses in San Luis Obispo County. A law enforcement officer, Detective Amy Chastain, obtained a medical marijuana recommendation and then made several marijuana purchases. On November 4 and 17, 2010 Detective Chastain purchased one-eighth ounce of marijuana for $50 from the Hopeful Remedies collective. Again on December 15, 2010 the same officer purchased one-half ounce for $80 from Hopeful Remedies. On November 4 and 18, 2010 Detective Chastain purchased one-eighth of marijuana for $50 from a delivery service, known as Open Access Foundation. On November 9, 2010 Detective Chastain purchased one-fourth ounce of marijuana for $120 and then again the same quantity on November 18, 2010 for $110 from West Coast Caregiving. In all of the above transactions Detective Chastain signed a form stating that she was a member of each of the respective collectives or that she was a caregiver.

Shortly thereafter the medical marijuana providers were arrested and charged with felony sales. At trial the defense made a motion to allow these sales as authorized under the CUA and the MMPA. The trial court agreed and the case was dismissed. The People appealed arguing that retail sales are not permitted since the sale of marijuana for profit is expressly disallowed. The Appellate Court agreed, reversed the dismissal of the case, and sent it back for trial.  The Appellate Court stated that: “Nothing in the CUA or the MMPA authorizes the retail sale of marijuana. Had the legislature intended to authorize retain sales, it could have done so. Instead it prohibited retail sales.”

As further support for their holding, the Court looks to the California Attorney General Guidelines for medical marijuana issued on August 25, 2008. Although these guidelines are not binding law, they serve as an important indication of how the laws will be enforced. These guidelines affirm that a properly organized collective or cooperative may legally sell medical marijuana provided that it is in full compliance with the CUA and MMPA. The Court relied specifically on the following from those Guidelines at Section IVB6 page 10: “Marijuana grown at a collective or cooperative for medical purposes may be: a) [p]rovided free to qualified patients and primary caregivers who are members of the collective or cooperative; b) [p]rovided in exchange for services rendered to the entity; c) [a]llocated based on fees that are reasonably calculated to cover overhead costs and operating expenses; or d) [a]ny combination of the above.”  http://ag.ca.gov/cms_attachments/press/pdfs/n1601_medicalmarijuanaguidelines.pdf

The new rule of Sandercock is now that to have the protection of the CUA and MMPA, marijuana sellers must set a price for each individual sale that is not retail but is some other inexact formula. The Court gives no explanation as to why it focuses on individual transactions and does not take into account the overall business to determine if the business is truly operating as a non-profit.  In the rush to prevent a profit, the Court appears to side step the clear and well settled law of non-profit organizations.

Legally, a non-profit organization is one that does not declare a profit and instead utilizes all revenue available after normal operating expenses in service to the public interest. Universities, hospitals and large national charities are examples of organizations that can be non-profit, but have salary scales on par with almost any for-profit corporation. CEOs of major hospitals can commonly earn salaries and bonuses of $500,000 to over $1,000,000. University presidents can have similar scales. http://www.nonprofit.pro/nonprofit_organization.htm

Non-profit corporations differ from profit-driven corporations in several respects. The most basic difference is that non-profit corporations cannot operate for profit. That is, they cannot distribute corporate income to shareholders. The funds acquired by non-profit corporations must stay within the corporate accounts to pay for reasonable salaries, expenses, and the activities of the corporation. If the income of a corporation inures to the personal benefit of any individual, the corporation is considered to be profit driven. Salaries are not considered personal benefits because they are necessary for the operation of the corporation. An excessive salary, however, may cause a corporation to lose its non-profit status. http://legal-dictionary.thefreedictionary.com/Non-profit+organization

A co-op is expressly defined in California law and most medical marijuana businesses are set up as a non-profit mutual benefit corporation. Generally speaking a co-op exists to serve people’s needs rather than to maximize profit. See Corporations Code Section 7110-7111.

The Sandercock decision creates a new restriction and burden for patients and their caretakers while failing to provide clear guidance of how a non-profit co-op or collective can follow standard business practices of considering all reasonable business costs in determining a fair price for their goods. This unreasonable burden is not consistent with the settled law of non-profit organizations nor does it permit the reasonable operation of lawful businesses operating under CUA and the MMPA. But it is current California law and another example why reform is necessary to achieve clarity and fairness.

At this time I provide legal representation for businesses and individuals on a broad range of medical marijuana issues. Inquiries for legal services should be directed to my office at 11440 W. Bernardo Court, Suite 300, San Diego, CA 92127. Telephone: (760) 735-6100. Email: edward@ewickerlaw.com. For more information see: www.ewickerlaw.com.

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