Yes, there are various factors to be taken into account before you change from non-profit cannabis collective to for-profit cannabis business. Most importantly, do not change until you have a State license to operate or you will be left unprotected from State law Cannabis violations.
Medicinal & Adult Use Business Formation.
What are my Choices?
You can file amended articles to preserve name and priority licensing. California law specifically provides that a mutual benefit corporation may amend its articles to change its status to that of a business corporation or a cooperative corporation.
For those concerned with priority in issuing licenses on a showing of lawful operation before September 1, 2016, you must be able to show written authorization (permit – condition use permit, etc.) from the local jurisdiction (City – County) were it was operating.
Please note you cannot amend the articles of a nonprofit mutual benefit corporation to an LLC because these entities file different articles. “Article of incorporation” for corporations (for-Profit or non-profit) and “Articles of Organization” for LCC. However, a mutual benefit corporation may merge with any domestic corporation, foreign corporation, foreign business corporation, or other business entity.
You can also file new articles corporations or to become a for-profit entity of your choice including the new Cannabis Cooperative Associations authorized by MAUCRSA.
The most prudent approach is to get a fresh-start by forming a new entity of your choice to apply for your for-profit cannabis business license(s). This will allow the winding-down of the non-profit mutual benefit collective’s membership to leave only active members for distribution assets, if any.
Bear-in-mind that filing amend articles of incorporation can only be filed if the corporation has an active status on the records of the California Secretary of State. If your status is Suspended, you must Revive the status back to Active by payment of all back-taxes in full. Arranging payments will not revive status to Active. The status of your entity can be checked online on the California Secretary of State’s Business Search at https://businesssearch.sos.ca.gov/.
Some concerns are; when you convert to a stock corporation you need to assess the potential nonprofit assets or tax consequences. At the time of conversion from a non-profit to a for-profit, the business will be treated as a California C-corporation which will be subject to double taxation. Once at the corporate level and a second time when profits are distributed to shareholders.
One-more-thing, selecting an entity (LLC, S-corporation, Partnership) precludes the entity from offering future equity (shares) to entity investors (non-individual) because California law does not allow non-individuals to hold shares LLC, S-corporation, Partnership.
Either way, Business 101 instructs us to form an entity to protect our personal assets and to establish a name marketing platform registered with the Secretary of State.
Our office uses a two-phase process to ensure a high degree of compliance, value, at an affordable rate. (phase 1) Formation and (phase 2) obtain written approval from the City or County where you wish to operate and apply for a State license of your choice.
The first phase initial item on your check list is to form your for-profit entity. Generally, a Domestic Stock Corporation is preferred because investors are generally formed as entities (Corp, LLC, etc., and entities cannot be shareholders in LLC.
My office can help guide you with the proper formation and corporate compliance requirements to secure a strong operation foundation. I will prepare and file your articles of incorporation with the Secretary of State, draft bylaws, minutes, obtain stock certificates, agent for service of process and all other required documents including your corporate tax identification number and sellers’ permit on a fixed fee retainer agreement of $3,500 that includes all formation costs ($420.50): $100 filing fee, $125 (annual) agent for service of process, $20 statement of Information fee, $59.50 Parasec Service Fee/Surcharge, Sec State Filing Counter Fee 1 $15.00, $10.00 Certified Copy cost and Deluxe Entity Kit $91.00. I also include one (1) year of complimentary telephone consultation to help answer the many questions that arise during the formation of your new cannabis business.
The second phase initial items on your check list is to have a business plan for the type of types of licenses that you wish to apply for. The City or County where you wish to conduct your cannabis activities will require some degree of proof that you can actually do what you say you can.
This is vitally important and is a requirement to obtaining a State license that you must obtain the written approval of the local jurisdiction where you would like to operate from. New and existing law allows Cities & Counties to outright ban any type of cannabis related activities whether nonprofit, noncommercial, or for-profit, commercial. So, it is best to find a local jurisdiction that is friendly to your type of cannabis activity.
If you are already permitted by a local jurisdiction ordinance, conditional use permit (CUP) the process is much more simplified. As a matter of fact, Business and Professions Code section 26050.1 allows the Bureau of Cannabis Control to issue temporary licenses. A temporary license is a conditional license that allows a business to engage in commercial cannabis activity for a period of 120 days. The Bureau can only issue a temporary license if the applicant has a valid license, permit, or other authorization issued by the local jurisdiction. The Bureau is now issuing temporary and annual.
If you are not already permitted by a local jurisdiction ordinance, the process will require the submittal of supporting information and documents showing the planned commercial cannabis activities to the City or County for location approval. The supporting information and documents must include those items outlined in the Bureau of Cannabis Control Anticipated Annual (Non-Temporary) License Application Requirements that is attached in .pdf format. Bureau of Cannabis Control Anticipated Annual (Non-Temporary) License Application Requirements
After City/County/local jurisdiction written approval is secured, the last step is to apply for a State license or licenses.
Under MAUCRSA, the Bureau is tasked with issuing four general types of licenses, for the following types of cannabis business operations: (i) distributors, (ii) retailers, (iii) testing laboratories, and (iv) microbusinesses.
In general, licensees may hold multiple licenses and license types. The exception to this is testing laboratories. A licensee who holds a testing laboratory license may not hold any other type of license issued pursuant to MAUCRSA.
Licenses to conduct commercial cannabis activities will be designated with an (M) for licenses allowing medicinal cannabis business activities and with an (A) for licenses allowing adult‐use cannabis business activities.
Licensees may concurrently hold licenses for both medicinal and adult‐use cannabis business activities. Licenses for testing laboratories will not have an (M) or (A) designation, and testing laboratories will be permitted to test both medicinal and adult‐use cannabis under one testing laboratory license.
Click on this link Licensing information what you need to know
How Much will it Cost? – Refundable Hourly Attorney Fee
Our office, with your assistance, can prepare the necessary documentation and submit it to the local jurisdiction for written approval and then submit an application to the State for a license to operate medicinal and/or adult use (Both) cannabis activities of your choice on a refundable, hourly, attorney fee, retainer agreement of $200 per hour with an initial deposit of $2,500 which represents 12.5 hours of attorney fee time x $200.00 per hour. Any costs (Notary fees, City, County, State fee) will be provided to you for approval and your payment.
The initial deposit is neither a minimum or maximum amount of attorney’s fees that may be required to complete said legal services as each City or County and State have different requirements that will require more or less time to complete. The initial deposit is not an estimate of total fees and costs, but merely an advance for security for work performed by Attorney.
What if the Area I want to be Located has ban on Cannabis Activities?
The local jurisdiction has the absolute right to regulate or even ban cannabis activities within its borders.
For example. on July 23, 2013, the Anaheim City Council passed an interim urgency ordinance prohibiting the operation of mobile medical cannabis dispensaries and collectives.
You should be in an area where you are actually wanted. I attended Coachella Planning Commission meeting that was very positive.
Please find below four (4) links to properties that are available in the Coachella area zoned for commercial cannabis businesses for your review.
Also, the City of Los Angeles has a new The Commercial Cannabis Location Restriction Ordinance is a proposed Los Angeles Municipal Code (LAMC) amendment that would establish location and distancing requirements for commercial cannabis activity within the City. Detailed maps are available on the City of Los Angeles Website for each licensed use and divided into 15 counsel districts. Click on this link https://planning.lacity.org/ and navigate as follows: On the left side of the page look for Policy Planning (In yellow) Click on Ordinances. Then Click on Proposed Ordinances. Scroll down the page and click on Commercial Cannabis Location Restriction Ordinance and Supplement. Then click on Maps and then selected the type of cannabis activity or activities you wish to operate. The main map does not show road details but, the 15 separate counsel district maps do. The maps have large files 25 MB + so, be patient.
Distribution Eligible Zones
Indoor Cultivation and Level 1 Manufacturing Eligible Zones
Level 2 Manufacturing Eligible Zones
Microbusiness Eligible Locations
Mixed Light Cultivation Eligible Zones
Retail Eligible Locations
Testing Eligible Zones
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Please be aware that possessing, using, distributing and selling marijuana are all federal crimes and that this blog is not intended to give you any legal advice, merely legal issues to consider and inquire about when conducting business with a federally illegal substance. Please also note that even though marijuana is illegal under federal law, you will need to pay federal taxes as though you are a legal entity. This is true even if you are a state law not-for-profit entity.
IRS Circular 230 Notice: We do not provide tax advice. However, to insure compliance with certain U.S. Federal Tax Regulations, we are required to inform you of the following: To the extent this message or any attachments concern tax matters, they are not intended or written to be used and cannot be used by any taxpayer for the purpose of avoiding penalties that might be imposed on the tax payer. Further, please be advised that to the extent this message or any attachments concern tax matters, they are not intended or written to be used and cannot be used by any taxpayer for the purpose of promoting, marketing or recommending to any party any matters addressed herein.