Licensing Cannabis Cooperative Associations
Licensing Cannabis Cooperative Associations [“CCA’s”] – we have been working on getting CCA’s recognized and licensed by the California cannabis regulators for half a year. We share our success in getting the California Dept. of Tax and Fee Administration [“CDTFA”] to recognize CCA’s and successfully received Sales and Cannabis Permits for a number of CCA’s. The process with CalCannabis has been quite a bit more protracted. However, we are confident that we will be successful, we will share more when we know more.
Meanwhile, we think it may be useful to others if we share the analysis that makes the case for the requirement for the regulators to issue a license to a CCA, without regard to it becoming a “Processor” or directly engaging in cultivation activities distinct from those of its constituent members. [the analysis is a bit complicated so hang on for the ride].
The mere filing of Articles of Incorporation by a CCA, which as a matter of law creates a legal entity, is not alone sufficient to require licensing. A corporation can be abandoned almost easily as it can be formed. A number of actions are required to flesh out the organization of a CCA. Once those actions are completed, however, CalCannabis is required by law to license the CCA for the reasons discussed below. Please note that the actions taken to flesh out of the organization of CCA must constitute engaging in commercial cannabis activities under California law. The sole purpose for the organization of a CCA is to engage in commercial cannabis activities. The fleshing out of the organization of such a corporation are in furtherance of those activities.
Licensing Cannabis Cooperative
California Business and Professions Code (“B&P”) Section 26223 (a) provides:
“Three or more natural persons, who are engaged in the cultivation of any cannabis product, may form an association pursuant to this chapter for the purpose of engaging in any activity in connection with any of the following:
“(1) The cultivation, marketing, or selling of the cannabis products of its members.
“(2) The growing, harvesting, curing, drying, trimming, packing, grading, storing, or handling of any product of its members.
“(3) The manufacturing, selling, or supplying to its members of machinery, equipment, or supplies.
“(4) The financing of the activities that are specified by this section.”
To refresh your recollection, B&P Section 26001(k) provides: “(k) ‘Commercial cannabis activity’ includes the cultivation, possession, manufacture, distribution, processing, storing, laboratory testing, packaging, labeling, transportation, delivery or sale of cannabis and cannabis products as provided for in this division.” Please also recall that in addition to the activities described in Section 26223(a), a CCA can engage in any activity permitted under the authorities granted a general corporation unless such activities are prohibited under Chapter 22.
As you can see from a comparison of these two provisions of California law, all of the activities described in B&P Section 26001(k) fall within B&P Section 26223(a). Further, B&P Section 26223(a) authorizes a CCA to engage in many activities that would not necessarily fall within the specific activities described in B&P Section 26001(k). Please also notice that the definition in B&P Section 26001(k) states that the phrase “commercial cannabis activity” includes all of the specified activities. For the purpose of statutory construction, the use of the word includes means that the list is not comprehensive and that the list does not exclude other activities that are not listed. Further, merely assisting cultivators in accomplishing one of the specified activities constitutes engaging in a “commercial cannabis activity” as the phrase is defined in B&P Section 26001(k).
The express language of B&P Section 26001(k) belies the position of CalCannabis. An activity that is not specified in B&P Section 26001(k) may constitute a “commercial cannabis activity.” An activity that assists in, or is in furtherance of, any specified activity will constitute a “commercial cannabis activity” within the meaning of the definition of B&P Section 26001(k). It is for these reasons we stated above that the fleshing out of the creation of a CCA, which is being organized to assist its members in marketing and selling their cannabis, constitute engaging in a “commercial cannabis activity” within the definition of B&P Section 26001(k).
Licensing Cannabis Cooperative
The preceding is the reason we advised CalCannabis a CCA should be issued a license because it exists. A CCA is a collective of cannabis cultivators. A CCA is a special purpose corporation enabled by the California legislature to engage in a specified group of business activities on behalf of a specifically defined group for the benefit of the specified group. The sole purpose for the organization of a CCA is to engage in commercial cannabis activities. These are the specific activities for which the legislature enabled the establishment of CCAs. As we have noted above, a CCA has the authority under the law to engage in these activities as soon as it is organized. As CalCannabis states, a person, and there can be no doubt a CCA is a person, must be licensed when engaging in a “commercial cannabis activity.” California Department of Tax and Fee Administration (“CDTFA”) recognizes, as we have earlier pointed out to CalCannabis, that securing identification numbers for tax reporting purposes is engaging in a “commercial cannabis activity.”
If CalCannabis is going to base administrative decisions on an analysis of the law, CalCannabis must secure competent legal counsel.
Licensing Cannabis Cooperative
“The Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) does not require that “[a]ny individual or entity engaged in business in California’s commercial cannabis industry must be licensed.” The MAUCRSA only requires an individual or entity when they are engaging in “commercial cannabis activity” as defined in Bus. & Profs. Code § 26001(k) to be licensed. Additionally, Chapter 22 of the MAUCRSA does not create a license requirement or authorize the Department to issue licenses to cannabis cooperative associations.”
The statement quoted above is nonsensical pilpul. It is nonsense to contend the statement MAUCRSA does not state a person engaged in California’s commercial cannabis industry is required to be licensed is somehow different from the statement MAUCRSA says such a person must be licensed when the person is so engaged. It is obvious based on a minimal understanding of logic that the reasoning CalCannabis utilizes to support its position with regard to the licensing of a CCA is circular.
Licensing Cannabis Cooperative
Why is CalCannabis thwarting the stated purpose of the California legislature to create the equivalent of a farmers purchasing, processing, and marketing cooperative as a vehicle to facilitate the ability of small cannabis cultivators to effectively compete in California’s commercial cannabis industry with a nonsensical analysis? CalCannabis’ argument consists of stating that it will not issue a license to a CCA until the CCA identifies an activity in which it is engaged that is a specified “commercial cannabis activity” even though a CCA is prohibited from engaging in the activities for which it was organized, and in which it is authorized by law to engage, unless and until it secures a license that CalCannabis is declining to issue. Nonsense.
CalCannabis has stated, “Additionally, Chapter 22 of the MAUCRSA does not create a license requirement or authorize the Department to issue licenses to cannabis cooperative associations.” As you are aware, B&P Division 10, Chapter 22, is enabling legislation. Chapter 22 enabled a new form of California corporation for the benefit of small cannabis cultivators. Why would the enabling legislation include a licensing requirement for a new form of California corporation? The requirement that all commercial cannabis activities be conducted between licensees is already set forth in B&P Section 26053(a). A CCA is authorized to engage in commercial cannabis activities as soon as its organization is completed. All such activities must be conducted between licensees. A CCA must be licensed.
CalCannabis has stated not authorized to issue licenses. Why does CalCannabis ask in its application form whether the applicant is a Cannabis Cooperative Association? CalCannabis is the licensing agency for cultivators. A CCA is a collective of cultivators. Why would a California agency other than CalCannabis license a CCA? How can CalCannabis reasonably conclude it cannot, or should not, license a CCA? It is our impression it is likely almost every action CalCannabis has taken with respect to CCAs will be deemed arbitrary and capricious if CalCannabis does not promptly rectify the most significant errors it has made with regard to CCAs. Hezekiah Allen…we hope this article fills in the parts of the analysis that you never understood. See Smaller California marijuana farmers form co-ops to save on costs, compete with large growers which were published today plenty of Mr. Allen’s input, but strangely, it fails to touch the licensing of CCA’s by CalCannabis issue…hmmm.]