Medical marijuana reform: How to make a dispensary nonprofit -- from the one woman in Colorado who's done it

One of the most prominent and controversial aspects of Representative Tom Massey's medical marijuana bill is that it would require state dispensaries to become nonprofit centers.

While it's hard to say whether this part of the legislation will stick around -- even the bill's co-sponsor isn't sold on the concept -- many are wondering what, exactly, it would look like if all the dispensaries that have popped up suddenly turned into nonprofits.

One way to get an idea is to check out Boulder County Caregivers, Boulder's first dispensary, whose owner, Jill Lamoureux, recently converted it into a nonprofit.

Lamoureux says even her accountant was surprised by her decision. Not only can't she make a profit, but the management company she created to run the operation is still subject to both state and federal taxes. Furthermore, since the management company is taxed as a corporation, she could be facing a higher tax rate than if she were a sole proprietorship.

One reason for the change, say Lamoureux, was that while she's been running a successful dispensary since September 2008 and has opened a second branch, her business wasn't making a profit anyway.

"A well-run dispensary that pays all property taxes, that pays its employees well and gives employees health insurance benefits, and that has a good attorney, good paperwork and only buys marijuana from legitimate caregivers or grows their own is an extremely expensive business to run," she says. She notes that it probably costs between $200,000 to $300,000 for a dispensary to start their own grow facility.

By owning the management company in charge of the nonprofit and earning a salary for her work, Lamoureux figures she's may be more likely to bring home a paycheck to her family. Furthermore, in a time of increasing competition in the industry, she sees the move is a good way to make her operation stand out in a responsible way. "It's to show patients you are not in it to milk them," she says.

So how does her nonprofit model work? Lamoureux explains that once all expenses have been accounted for, 40 percent of net profits go to her management company. The rest gets returned to her patients in the form of gift cards based on need. Eventually the dispensary will institute a sliding payment scale, and a similar program will likely go into place at Lamoureux's second dispensary when it goes nonprofit next month.

So how does Boulder County Caregivers 2.0 compare to the concept of "nonprofit centers" being bandied about the Capitol? "I think it's exactly what they're talking about," says Lamoureux.

That does not mean she's necessarily in favor of the bill. For one thing, she points out that like her, dispensary owners who want to turn into nonprofits currently have to re-apply for their municipal sales tax licenses. That could be a major problem for dispensaries that have been allowed to operate in cities and towns that have since banned dispensaries because their original sales tax license was granted before the moratoriums.

Furthermore, Lamoureux believes that Massey's current bill may allow people to game the system the same way people have gotten around nonprofit dispensary requirements in California. In that state, Lamoureux says some dispensary owners pay themselves a salary that equals the vast majority of gross profits. Not only do they take home roughly the same amount of money as they would as a for-profit, but since their net profits suggest they're operating at a loss, they've built themselves a convenient tax shelter.

"It's very easy to manipulate," concludes Lamoureux of nonprofit status. So how can well-meaning patients tell if a nonprofit dispensary is legit? Lamoureux suggests they ask the operation to divulge their management fees and whether these fees are deducted from gross or net profits. If the dispensary won't spill the beans, they should take their business somewhere else.