This past August, a case came down from the California Court of Appeal titled “The People vs Baniani 2014 Cal.App. LEXIS 765.” This case is interesting and has at least three important lessons for dispensary owners on how to avoid legal troubles, including:
1. maintaining proper business formation and business formalities
2. remaining legally compliant as to patient status, and
3. taking proactive steps to properly train and create business protocols for employees.

Because Mr. Baniani did most of these things correctly, the court found he was entitled to a “medical marijuana defense” at trial.

Mr. Baniani was a medical marijuana patient and a dispensary owner. (In California, we also refer to dispensaries as collectives or cooperatives.) Mr. Baniani had a dispensary cooperative. While he was out of state on vacation, he left the store in the hands of an employee who did not follow the protocols of the dispensary for accepting patients; as a result, he sold medical marijuana to an undercover police officer. When Mr. Baniani arrived home, he was charged with possessing marijuana for sale.

The first thing we can learn from this case is the importance of proper business formation and following state law. Doing this permitted Mr. Baniani the right to use a medical marijuana defense.

Before he started his cooperative, Mr. Baniani employed a cannabis law attorney to guide him on proper business formation, to help him understand the relevant laws, and to encourage him to function as a nonprofit entity pursuant to California law.

Every medical marijuana state has its own rules related to business formation, including obtaining licenses, permits and tax identification numbers. California requires dispensary owners to run their businesses as nonprofit organizations and have a seller’s permit from the State Board of Equalization, and local agencies may also have other requirements.

At trial, Mr. Baniani’s lawyer testified regarding how the organization had been formed and what guidance he had received. In addition, Mr. Baniani was able to provide evidence of his nonprofit status by means of accurate financial records, and he presented evidence of compliance with other state requirements.

Obtaining legal assistance from a lawyer who knows the cannabis industry in your state is key; because while there are many “consultants” who advertise on the Internet that they can help people start dispensaries, and while some of them may know how to do this legitimately, none of them can give legal advice, unless they are lawyers. It was sound legal advice that gave Mr. Baniani the upper hand.

Further, some of the materials offered for sale (incorporation kits) will not protect a dispensary owner if charges are brought against them. I know, because I have purchased these online products, and clients have brought them in to me for review. On a whole, it has been concerning to me that people do not have the proper legal paperwork in place.

The second thing Mr. Baniani did right was to maintain his patient status. The court of review noted that Mr. Baniani was a qualified medical marijuana patient. This speaks to the importance of doing whatever is required in your state to maintain that status. In California, one has to obtain a doctor’s recommendation to possess, use or act collectively with other medical marijuana patients in the distribution of medical marijuana—and that recommendation must be renewed annually.

As a business owner with employees, you also should ensure that employees maintain their patient status. Thankfully, Mr. Baniani had kept his status current; otherwise, when charged, he would have been guilty of the unauthorized sale of marijuana, because he would not be considered a “qualified patient.”

The final lesson we see is the importance of properly training and creating policy protocols for employees. Somehow, Mr. Baniani’s employee either was not clear on, or was not devoted to, the cooperative’s policies. Stressing the importance of adhering to protocol is vital. In this industry, we may want to be a little more relaxed in dealing with people, but this is not always the best idea. Business owners must act like business owners. They should create an employee manual and develop a policy guidebook that can serve as a reference for staff and volunteers.

To sum up, I recommend that dispensary owners follow and maintain business formalities. Also, keep and maintain accurate accounting records. Furthermore, you should consider hiring an industry savvy CPA to assist with accounting and tax preparation. Next, maintain your medical marijuana patient status pursuant to state laws. Finally, implement and maintain a plan to train employees, and create a written policy manual, so that everyone knows the rules and what to do in any given situation.