Incorporating Your Medical Marijuana Collective in CA

Forming a Corporation

It has been stated in the Attorney General guidelines (see sidebar for link) and many dispensary owners have also told me that they formed their business structure under a non-profit corporation, particularly a mutual benefit corporation.  This is not necessary and requires a more in-depth description of your business operations.

Instead it is much easier to run your business as a not-for-profit, as stated in the AG guidelines.  A not-for-profit organization is an organization that does not distribute its surplus funds to owners or shareholders, but instead uses them to help pursue its goals.  This means you can still pay yourself and employees a reasonable salary and have your expenses covered for the business.

Keep in mind that starting a corporation requires you to pay a minimum franchise tax of $800 per year every year after your first year of incorporation.  This tax is covered so long as you pay more then $800 in taxes per year.  This form of business is recommended for someone looking to start a collective with patients other then close friends in order to limit the liability of the collective owner.  If you only plan on having only a few patients, such as close friends you may want to consider only filing for a DBA at your county office (see previous post).  By filing only for a DBA you don’t have to worry about paying the minimum $800 in tax each year, which may be better if you don’t plan on making very much in revenue each year from your collective, and/or if you don't plan on expanding and serving new patients outside of people you know.

After following the previous steps for naming your business (posted April 4th) you are ready to file your articles of incorporation (see sidebar for link to form). The fee for filing your articles of incorporation is $100 in California.

When filing for a DBA or Corporation in your local county you are usually required to publish your new business in a local paper once a week for 4 consecutive weeks.  The workers at your local county clerk's office can usually recommend a paper that will do this if you file in person and ask.  In Oakland you can get it done by a paper on the same block as the county office for $40 (the paper will send the county office all the necessary paperwork and your proof of publication by mail to the address you listed on your application, so you don’t need to take anymore action on this).

If you filed your articles of incorporation to become a c-corp now you will need to make an s-corp election.  An s-corp election allows you to pay any taxes incurred by the business on your individual tax return and at your own tax rate, this will be beneficial to most, saving you time on taxes, and usually a lot of money (you don’t have to hire a corporate tax accountant to file your taxes, and may pay a lower tax).  Collective owners/ legal Marijuana Growers I have met say this step is all a formality, as you will not likely pay much in taxes since you are running your collective in the legal not-for-profit manner.  The only taxes you will have to pay are any local taxes on businesses and your state taxes, which we will get to later.

Filing for a dba and getting your dba published in a local paper can be done in one day if you go in person to your county clerk’s office.  The time it takes for your articles of incorporation to be processed can be found here: http://www.sos.ca.gov/business/be/mail-processing-times.htm

As soon as I get a moment I will post up some sample articles of incorporation, dba forms, and sellers permit forms from collective owners.


Tomorrow will be a short post on local permits you may need to file for your collective, and then we will get into setting up your grow and running your collective.