Dave Hodges operates A2C2 medical marijuana collective in San Jose. He wrote this column for San Jose Inside.—Editor
Harborside collectives in San Jose and Oakland were recently ordered to shut down by U.S. Attorney Melinda Haag. Many have called Harborside a model for other medical marijuana collectives.
To help everyone better understand what the complex California law states, I want to provide some direct quotes and key information:
Let’s start with what defines a “collective” under California law? The only definition comes from Health and Safety Code 11362.775, where it states: “[California Medical Cannabis patients are allowed] Collectively or Cooperatively to Cultivate Marijuana for Medical Purposes.” In simple terms, the entire definition of what a collective is and how it operates is defined only by the word “collectively.”
The “guidelines” most collectives operate under are the 2008 Attorney General (AG) “Guidelines for the Security and Non-Diversion of Marijuana Grown for Medical Use.” One thing that must be understood is that the AG Guidelines are NOT the law. They are AG Jerry Brown’s legal opinion of the law. Although they are not the law, they do reference it. In the AG Guidelines Section IV. A. 2.“Collectives:” it states “California law does not define collectives… As such, a collective is not a statutory entity.”
So what is a “non-statutory entity”? It is any “entity” not defined under statutory law. A “non-statutory entity” is governed by “non-statutory law,” and includes structures such as churches, private associations, book clubs, etc. In the case of a “Collective”, the “non-statutory law” is defined in the “collective agreement” or “membership contract”. Thus a collective is a “non-statutory entity” who in effect defines it’s own “non-statutory law” in its “collective agreement.”
Next, let’s discuss what defines a “Sale.” California’s Sales And Use Tax Law RTC section 6006, defines a “Sale” to mean and include: “Any transfer of Title or Possession”. Also known as a change in ownership. If a collective is structured properly, every member “collectively” owns the “collective.” As such, no change of ownership takes place when a member of the collective contributes to and receives cannabis produced “collectively”.
The Board of Equalization’s legal opinion of a true collective is that within the collective no ownership changes and as such no “sale” of cannabis takes place, thus no sales tax liability is incurred. Thus a true collective does not pay “sales” tax. Over the past year, I have been undergoing an audit process with the BOE. The determination of the BOE auditor is that A2C2 is NOT a collective and, as such, I owe them $130k. The catch is, once the administrative remedies are exhausted, the court of appeals will have to decide if the Collective Agreement created by my attorney J David Nick defines a true collective. If it does, the BOE will owe me $12k for the sales tax I mistakenly paid them.
When it comes to the city of San Jose’s tax, Measure U, the fact that the city attorney is aware of Measure U’s violations of law is evidenced by the drafted Title 6 Ordinance, Section 6.88.440. “Collective Operations”, subsections C & D:
“C) No sale of any products, including medical marijuana… D) In-kind contributions, monetary contributions and property contributions provided by members towards the collective’s overhead expenses shall be in strict compliance with State law…” and is further supported by Measure U: 4.66.220 “Payment of tax does not authorize unlawful business.”
Although a “sale” inside a “collective” is protected in the state of California, Federally “sales” of cannabis are clearly illegal. In the case of Harborside, operators clearly state they “sell” marijuana and pay “sales tax” on it. Combine this with the fact that Harborside accepts medical cannabis patients who live outside the state of California, one might understand how a charge such as Federal Drug Sales/Trafficking might be filed.
There is no one in the medical cannabis industry who is “safe” from federal enforcement. All one can do is limit one’s exposure to activities that are clearly illegal and work within the exact letter of the law. I do not agree with the apparently indiscriminate crackdown on cannabis clubs, but in my opinion, “the worlds largest seller of marijuana” has made a mockery of the “collective” model. And based on the interstate “drug sales,” Harborside may have clearly overstepped California’s Medical Cannabis laws.
Dave Hodges is the operator of A2C2 collective in San Jose.