Cannabis Cooperative Associations
Cannabis Cooperative Associations – (“CCA”) are a special form of corporation. The enabling legislation for CCAs was passed by the California legislature in 2017 as part of SB 94. This legislation was enacted for the express purpose of creating a form of organization for small cannabis cultivators that would be the equivalent of a purchasing, processing, and marketing agricultural cooperative. This legislation created a new form of California corporation expressly for the benefit of small cannabis cultivators.
What is CCA?
A CCA is just an ordinary business corporation that was given a number of special privileges to assist small cannabis cultivators. The legislature also placed some limitations on CCAs that are designed to prevent the misuse of these organizations. The statutes relating to CCAs are found in the Business and Professions Code at Chapter 22, Title 10 rather than in the Corporation Code.
A CCA is subject to all of the general provisions of the California Corporations Code except to the extent such provisions are modified by specific provisions of Chapter 22. In effect, the California legislature established this new form of a corporation under the general business corporation laws and then described the special privileges and limitations of CCAs in Chapter 22, Title 10 of the Business and Professions Code.
What are some differences between a CCA and a general business corporation?
A CCA can only be organized by three or more licensed small cannabis cultivators. The Board of Directors of a CCA must be controlled by cannabis cultivators. Voting membership in a CCA is limited to cannabis cultivators. The total canopy of the members of a CCA is limited to 140,000 square feet. No more than one-half of the cannabis business conducted by a CCA can be conducted with non-members. CCAs are exempted from most of California’s laws relating to the sale of securities. CCAs are exempted from some of California’s laws relating to business practices.
How does the regulation of the cannabis industry apply to a CCA?
A CCA is a corporation. A CCA is an entity that is separate and independent from its members, owners, officers and employees. A CCA must secure a license from the Cannabis Division California Department of Food and Agriculture (“CalCannabis”) as a cannabis cooperative association. If a CCA engages in a cannabis business activity that requires a cannabis business license, other than as a collective cultivator, the business activity must secure an appropriate from the appropriate regulatory agency. The operation of licensed cannabis businesses under the umbrella of a CCA creates a financial advantage for a CCA.
Why are CCAs important for small cannabis cultivators?
CCAs were created by the California legislature to give small cannabis cultivators a vehicle through which they could pool resources and compete with well-organized, well-capitalized cannabis businesses. A CCA gives small cannabis cultivators a vehicle in which to establish and operate vertically integrated cannabis businesses that can compete with large vertically integrated businesses. CCAs are vehicles through which small cannabis cultivators can secure for themselves a share of all of the financial benefits involved in the movement of cannabis from cultivator to consumer.
What can a CCA do for a cannabis cultivator?
A CCA can do everything for a cannabis cultivator that a grape growers’ purchasing, processing and marketing cooperative could do for a grape grower.
What are some of the specific features of CCAs that benefit their members?
Cannabis cultivators can be members of multiple CCAs. One CCA can be a member of another CCA. The basic concept for CCAs was the creation of a vehicle to facilitate a pooling of resources among small cannabis cultivators. Chapter 22 broadens this concept by allowing the pooled resources of one CCA to be utilized by members of other CCAs. If one CCA has a processing and packaging operation or an extraction operation, these operations can be utilized by members of other CCAs. Operational efficiencies are created through the use of a facility owned by one CCA by multiple small cultivators.
What is the bottom-line reason a cultivator should be interested in membership in a CCA?
A properly organized and operating CCA is a financially more efficient organizational structure for the movement of cannabis from cultivator to consumer than the conventional business structures being utilized in California’s cannabis industry. A properly organized and operating CCA, or group of CCAs, can provide all of the benefits of a well-financed vertically integrated business structure to a small California cannabis cultivator. A small player can secure the benefit of being a part of a major player through the collective power of a cooperative association.
Why do CCAs have a financial advantage over conventional business structures?
The unique financial advantage of conducting business through a properly organized and operating cannabis cooperative association that the California legislature gave to CCAs arises from the manner in which Cannabis Cultivation Tax (“CCT”) and Cannabis Excise Tax (“CET”) are collected, reported and remitted to the California Department of Tax and Fee Administration (“CDTFA”). A CCA can defer the payment of CCT and CET to CDTFA in a manner that is not available to a conventional business structure.
Can CCAs be utilized both for medical and adult-use cannabis?
Yes. There are advantages to the separate movement of medical cannabis and adult-use cannabis through CCAs even though there is no difference between medical cannabis and adult-use cannabis at the cultivator level. There are some important differences as cannabis moves from cultivator to consumer. At the present time, the movement of cannabis from cultivator to consumer as medical cannabis has some financial advantages over the movement of cannabis as adult-use cannabis.