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All About California Marijuana Stores and Smoking Lounges

As a personal injury attorney in California, I have seen many 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 THC.

Even stranger, some cities like Santa Monica have “smoke free” beaches and streets, etc. So we will have to assume the new CA law carves out a “designated area” to smoke weed, but we don’t know for sure. 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, federal law and other issues. In fact, the whole state of law over California marijuana is in flux.

Just the other day, I saw here that we have a new weed breathalyzer that detects THC. But unlike alcohol use, inebriation standards for drivers remains 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 of all is that like CA gun laws, there is no uniformity from city to city. Because of this, we are seeing 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 busy lobbying to get in with the city, while the Highwaymen are cleaning up with very little risk.

With that as our basis of understanding, I wanted to understand CA marijuana law, and began doing research. Below is everything I learned about California marijuana laws. Included in my research is 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. Prior to Marijuana becoming legal for recreational use in California, it was only allowed with a medical doctor’s “recommendation.” Doctors are still rarely able to legally prescribe marijuana, as it is still illegal under federal law. In any event, modernly in California, dispensaries fall into two classes. 1. Medical collectives; 2. Recreational sales. Most of all, state, local and federal laws all come into play, making these operations very complex.

In fact, from a legal standpoint, it is almost a requirement to be a lawyer to effectively navigate all the potential legal issues that may arise. Of particular interest, the risks of being charged, jailed and/or property forfeiture for a landlord or tenant are always a possibility. Even if the feds leave your operations alone, certain more conservative counties still refuse to issue business licenses or land use variances to accommodate marijuana type operations.

So there is also a risk of being charged civilly and criminally by local authorities, despite the fact that the State of California has made it legal to buy, sell and consume marijuana based upon statute and judge-made law.

So if you seek to establish any type California marijuana operation, it is essential to speak to a lawyer first. In any event, this outline below should help people understand some of the problems people face presently.

As a California marijuana defense lawyer, I wanted to share with you what I have learned about 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, it basically was thought that it automatically led to Cocaine and Heroine use. Whether or not that theory has been debunked is basically irrelevant at this point. In fact, at light speed, California legislated multiple laws regarding the medical use, possession, cultivation and distribution of medical marijuana.

So for the last 15 or so years, “Medical” marijuana became legal. The underpinnings are discussed 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, as well as 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:

  • AIDS,
  • arthritic episodes,
  • anorexia,
  • certain types of cancer,
  • chronic pain syndromes,
  • muscle and other types of spasms,
  • glaucoma,
  • migraines.

But is also includes a catch all of sorts 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 data base 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, card holders can buy more, grow more and get stronger strains of the drugs and its extracts. But alas, as also 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 are simply getting 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.)

In fact, the awesome thing about remaining a medical marijuana patient is that you can get much cheaper 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 is creating a record that is filed with the store itself. If the store is raided by the feds, 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, right now it’s like the wild wild west for new CA MJ operations. What I mean is that over the next 18 or so months, the patchwork of new rules and regulations are just kicking in.

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

On the other end of the coin, a non medical 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 certain individuals from possessing firearms, ammunition, or explosives. The penalty for violating this law is ten years imprisonment and/or a $250,000 fine. Further, 18 U.S.C. 3565(b)(2) (probation) and 3583(g)(2) (supervised release) makes 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 The United States Controlled Substances Act?

Sadly, the feds have an outdated law that has zero rational basis to exist in its present form. Denying all medical reasoning and science, elected officials decided long ago that marijuana was evil and had zero medical 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.
Obviously, 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, as well as 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 medicine 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 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, re written the Constitution.


So the issue here is whether marijuana is a federally controlled substance, and it is. Since it is controlled, the federal government, and not the state, decides what drugs are legal and not legal. And the feds treat MJ as if it has zero medical uses, despite the fact the FDA 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.

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

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

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

What the future holds is uncertain. But we do know that 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 a criminal enterprise.


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 bucks for a doctor’s recommendation to use marijuana.

This is because:

  • some people are really 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 stronger 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 are also going retail, there will be higher prices associated with a retail recreational license.

In fact, 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, very few adult use stores will be open right away selling commercial cannabis. Some sources indicate that only a few will even be up and running at all in the entire Golden State.

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

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 capitol of America. In the meantime, medical MJ card holders 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 presently exempts qualified patients from paying the state sales tax altogether. Also, it protects those who possess up to eight ounces of the botanical herb. In fact, this is seven ounces more the over 21 recreational limit.

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 Doctors “Recommendation” and a “California Medical Marijuana Identification Card.”

As noted, the only way for consumers 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 for 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 Product?

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

In any event, patients are authorized to 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 DUI arrests, cities and counties need new forms of revenue. BE WARNED growers and MJ 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 THC. Contrast this with 1000 mg of THC that will be available recreationally. After July 1, 2018, the grace period that lets edibles have more than 100 mg of THC ends. After that, edibles medically and for recreational use cannot have more than 100 mg of THC that must get divided into 10 mg per part servings.


  • What are My Anticipated Start-Up 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 smart consider you can be raided by the feds at any time. So no matter what, it’s gonna cost you now or later.

My research from interviewing collectives and store personnel shows a vast array of differing prices and costs depending mainly upon the GEO location of the distribution outlet. For purposes of this discussion, we will address both the legal and the illegal route. Going legal means dispensary costs of $20 grand U.S. to 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 a city like Newport Beach, for example. 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. This means you need to cut checks to both parties if you want a favorable city council vote. I am just being real here.


  • So What are Some of the Fixed Costs?:
  1. Like state, municipal fees such as city and county. Assuming there are licenses for lease, each city, and county will likely have a statutory scheme codified in advance. Look for these licenses to be enforced by a code enforcement officer in a lottery type of situation. Likely, this will be similar to beer and wine and/or hard alcohol permits.
  2. Costs of building out the location. Some lucky tenants can get tenant improvement monies for signing a long-term lease. (TI Money)
  3. Costs of cultivation. This includes germination, quality seeds, growing, topping, enriching and ultimately harvesting and drying and distributing.
  4. Costs of legal counsel and paralegals, law clerks to deal with all the problems surely to arise.

  • So What Exactly is a California Medical Marijuana Dispensary?

Believe it or not, California has not really codified what a medical dispensary is or isn’t. In fact, the legislature never specifically defined what a dispensary or collective actually is. In fact the MMP is the only thing that guides us at all.

In fact, California Health and Safety Code 11362.775 is the only thing we have to really guide us as lawyers. Basically, this section asks caregivers and 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 combinationthese situations.

Try and Reach out to Law Enforcement and Hire Security Personnel: The smart move for a legal growing 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 leave all those patients exposed to gunfire, or a knife attack potentially. 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, one of the biggest risks for a high traffic and busy place like this is employment and customer personal injury claims. First of all, many insurers are not interested in insuring businesses that violate federal law. Second, you need liability insurance in order to protect the corporation and its officers. After all, one bad 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 towards 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. In fact, many California dispensaries actually are applying for these so they can also sell to recreational use consumers. Plus they will still 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 start ups go, it’s basically the same as setting up a medical dispensary, minus some restrictions regarding medical patients.

So far, since January, only West Hollywood had stores licensed to sell to the over 21 crowd with a 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 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 valid business structure for their business. They are able to operate 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 as described in Internal Revenue Code Section 501(c) or California Revenue and Taxation Code (R&TC) Section 23701. (Source.)

As emphasized above by author, over 21 stores may operate as a for-profit if they so choose. As a lawyer, I can say that non profits require a lot 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 very well could be a renaissance of sorts 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 fine or arrest by local officials. This means cities will likely issue permits to those lucky few businesses who can navigate all the start up red tape, or those with existing locations.

In fact, part of Proposition 64 included a ban on all public marijuana consumption. Also, private owners retain their own rights to allow marijuana on their property of not. But I would look at California civil rights laws and medical rights laws as a method to steer landlords towards compassionate use on their properties.

Below are a few of the smoking lounge rules:

First of all, California does not require a state license to open a lounge unless you are also selling 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 abut trying to set up an outdoor smoking patio unless it is totally hidden from passersby. One method of doing this could be tinted glass two way mirrors, or simply 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 at the same time! So a smoking lounge in a bar, bad, next to a bar, maybe ok.

And last but not least, lounges cannot do business within 600 feet of any schools.

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

MAYBE! There are a variety of companies that will build a “turn-key” dispensary for you. Some of these are at pre existing locations and doing well. So this literally means that all you have to do is “turn the key” to open the door, and the establishment is completely ready for you to run. The medical stores will now be offered at a premium. This is because they can now tap into the commercial market as well. But lawyers like me can help with the transactions.

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 prior to 2018 ranged from $100,000 – $200,000.

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 just raided by law enforcement? What are you buying? Debt? Or is it really 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 and escrow that protects you. But in the end, it’s caveat emptor. (buyer beware.)

Discussed above were the rules and regulations for medical and for-profit marijuana stores in California. 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 bit of 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.

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