For state-by-state legalization to succeed, state and local governments often need to take significant enforcement measures against “gray market” cannabis operators to ensure an even playing field for licensed operators who face the financial pinch and responsibility of comprehensive licensing regulations and robust taxation. To date, each state with an existing, unregulated medical cannabis industry has taken action to make sure unlicensed, unregulated medical cannabis operators do not undermine or disenfranchise their otherwise licensed counterparts (see Washington State as a prime example, or the continuing legislative efforts in Oregon). In 1996, California became the first state to adopt medical marijuana legislation and that also makes it the state with the longest reigning gray marijuana marketplace. Under California’s Compassionate Use Act of 1996 (“CUA”), qualified patients and their caregivers have been using closed-loop, non-profit cooperatives and collectives to provide consistent access to cannabis for medical use. These cooperatives and collectives (and their members) enjoy immunity from state law criminal prosecution so long as they comply with the CUA. Since 1996, these collectives and cooperatives have operated under a gray area of the law — mostly according to this 2008 state attorney general memo. Each California city and county has treated these collectives and cooperatives differently. Though not every CUA collective or cooperative is engaged in illegal commercial cannabis activity, this legal gray area has allowed many CUA collectives and cooperatives to engage in outright illegal conduct, including selling cannabis for a profit, tax evasion, and diverting cannabis over state lines.
continued in comments