Ask a Cannabis Attorney: What is a Cannabis Co-op?
By Kyle Sosebee
A cannabis co-op is a cannabis business that operates cooperatively. Co-ops are based on the idea that the people who either work at, or use, the business are the owners. The owners get the profits and they get to make decisions about how the business operates. Co-ops follow the seven cooperative principles:
- Voluntary and open membership
- Democratic member control
- Member economic participation
- Autonomy and independence
- Education, training and information
- Cooperation among cooperatives
- Concern for community
This is a really different way of running a business. In a traditional corporation, an investor can buy shares (stock) of the company, and then based on how many shares she owns, she is entitled to that many votes and that much of the profit. In other words, a traditional corporation is designed so that money buys power and profit. Not so with a Co-op. Each Co-op member gets one vote, and a share of the profit based on how much the member contributed to the business.
There are a few different types of co-ops: (1) consumer co-ops, where the consumers are member-owners and get discounts or dividends. You might be familiar with versions of this model: REI or your neighborhood co-op grocery store are consumer co-ops. (2) Producer Co-ops, which are traditionally used by farmers, allow producers to cooperatively market and sell their veggies or animal products. The U.S. has thousands of local farmer cooperatives, including large companies like Ocean Spray and Organic Valley. (3) Worker co-ops, where the workers are the owners. This is a business model used for everything from cafes, breweries, bike shops, bakeries, printers, construction companies, home health care, and much more.
What Does This Have to do with Cannabis?
There are a number of ways the co-op model intersects with cannabis. First, growing cannabis is essentially an agricultural activity. And farmers have traditionally used co-ops to provide mutual support and stability – something that small-scale cannabis cultivators might benefit from. Consumer co-op models have long been used for medical cannabis to provide stability to the organization while also reducing costs to the consumer (which is important when you’re talking about the cost of medicine).
Worker co-ops may offer a way of achieving some of the social and economic equity goals that most states are currently trying to accomplish through legislation and regulation. These goals seem to be elusive as the cannabis industry looks increasingly like traditional corporate America, and less like the people who ran the cannabis industry pre-legalization. We wonder whether this demonstrates an inherent conflict between principles of equity and corporate goals of maximizing profit.
In contrast, a worker co-op is fundamentally based on democracy, equity, participation, inclusion, and community. In a worker co-op, you won’t see the workers being paid minimum wage while the CEO rakes in millions. You won’t see workers being forced to work in dangerous or degrading conditions without any way to object. Worker cooperatives provide a way to keep profits local, to pay workers fairly, to promote social equity and offer real opportunities for economic participation. These are all goals of cannabis advocates, regulators and consumers. Additionally, co-ops are naturally resistant to consolidation or to being sold to the highest bidder after getting a license.
Can I Buy My Cannabis from a Co-op?
Maybe. Operating a cannabis co-op can get complicated for all the regular reasons cannabis business gets complicated: highly regulated, federally illegal, difficulties with finance, banking, insurance, etc. State regulators have generally not given much attention or incentive to co-ops as a business model for recreational cannabis. But there are some windows of opportunity across the country:
In Massachusetts, the state has designated a special license type — Craft Marijuana Cooperative — for cultivators. This license type has residency requirements and requires one of the members to have recently filed a Schedule F tax return (that’s what working farmers file). All the co-op members operate under a single license. It comes with some perks and some limitations, but this license is intended to provide opportunity for local farmers to enter the cannabis industry.
Unfortunately, not a single craft co-op license has yet been issued, and only a few such applicants are in the queue. The reasons for this apparent lack of interest are complex, but it’s notable that the co-op license is only available for growers. The Massachusetts regulators are not yet offering any incentives to form a worker-owned dispensary, for instance.
In California, there has been a long history of co-ops and collectives operating in the medical sector. But regarding adult use, the state has created a category of business called a Cannabis Cooperative Association. This is structured like a more traditional agricultural producer co-op, where each member is a separate, individually licensed cultivator.
California has restricted co-op members to small-scale growers in an effort to make small businesses, working cooperatively, competitive against the massive corporate cultivation operations. This model has received some criticism as being vulnerable to exploitation by large companies engaging in “license stacking.”
Chicago is home to a worker-owned cannabis co-op, even though Illinois does not have a special license category to encourage co-op development. Also, in Chicago, the mayor has even floated the idea of a city-owned cultivation co-op that would offer local, but unfunded, entrepreneurs a path to owning part of a cannabis business. Recreational cannabis is less than a year old in Illinois, so it’s too soon to say where this will lead.
Are you starting a cannabis business and you also care about equity and democracy? Consider a co-op!
Is your local grow or dispensary worker-owned? Please write to me and let me know!
Do you have a question about cannabis and the law? Ask us!
Disclaimer: The information in this column is not legal advice, is not a substitute for the advice of a licensed attorney in your jurisdiction, should not be relied upon as such, and does not create an attorney-client relationship with anybody.