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Did The Legislature Grant A License To Lie To The Cannabis Industry?

An entire division of California's Business & Professions Code is devoted to a single plant genus - Cannabis.  The official name of the division is the "Medicinal and Adult-Use Cannabis Regulation and Safety Act" aka the MAUCRSA.  Bus. & Prof. Code § 26000 et seq.  The MAUCRSA provides for, among other things, a new type of corporation formally defined as an "association" but sometimes referred to as a "Cannabis cooperative".  An "association" is:

[A]ny cannnabis cooperative that is organized pursuant to this chapter [Chapter 22, commencing with § 26220] .  An association shall be deemed incorporated pursuant to this chapter, or organized pursuant to this chapter and shall be deemed a cultivator of a cannabis product within the meaning of this chapter, if it is functioning under, or is subject to, the provisions of this chapter, irrespective of whether it was originally incorporated pursuant to those provisions or was incorporated under other provisions.

Amazingly, the legislature has apparently seen fit to grant these associations a blanket exemption from the California Corporate Securities Law (Cal. Corp. Code § 25000 et seq.):

An association is not subject in any manner to the terms of the Corporate Securities Law (Division 1 (commencing with Section 25000) of Title 4 of the Corporations Code), and any association may issue its membership certificates or stock or other securities as provided in this chapter without the necessity of any qualification under that law.

Bus. & Prof. Code § 26228.  Note that the statute isn't limited to an exemption from the qualification requirements of the CSL.  Thus, the legislature seems to have granted the association a pass on the antifraud provisions as well.  Moreover, the exemption isn't limited to the offer and sale of its stock or memberships.  Seemingly, therefore, an association could sell millions, or even billions, of dollars of promissory notes to the public without qualification under the CSL.  It is beggars belief that the legislature intended to countenance such a result.

Of course, this California statute does not provide any exemptions from the federal securities laws or the securities laws of other states.  Nor does the statute provide an exemption from other California laws, including anti-fraud statutes outside of the CSL.  Finally, I expect that courts will do their best to construe the statute as narrowly as possible.  Therefore, no association should interpret this blog as advice that it is now free to lie, cheat and steal with impunity.

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Bus. & Prof. Code, California Securities Laws, cannabis cooperative, Corporate Securities Law, association, Business and Professions, exemption, marijuana, MAUCRSA, Section 26000, Section 26228

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