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The Challenges of Charity in the Cannabis Industry - Growers Network

Growers Network Staff

November 12, 2018 6 min read
November 12, 2018
6 min read

The Challenges of Charity in the Cannabis Industry

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Cannabiz Media detours over into charitable giving and looks at why it’s so dang hard to be nice to others (at least in the US).

The following is an article produced by a contributing author. Growers Network does not endorse nor evaluate the claims of our contributors, nor do they influence our editorial process. We thank our contributors for their time and effort so we can continue our exclusive Growers Spotlight service.


Disclaimer

This article was originally published on the Cannabis.media blog. If you would like to read the original article, click here.


In the cannabis industry, businesses face a long list of challenges — from banking and taxes to marketing and advertising — but did you know about the challenges that cannabusinesses are facing when it comes to generous donations? Many non-profit organizations aren’t allowed to accept donations from cannabis businesses or simply don’t want to accept those donations, even in states where cannabis is legal for recreational use.

Cannabis businesses that want to give back to their communities or to specific charitable organizations are often faced with pushback from the very organizations that are often desperately trying to raise money. Not only that, but there are actually barriers that cannabis companies hit before they even approach a non-profit to discuss possible donations.

Let’s take a look at some of the obstacles that cannabis companies have to navigate and the risks that charities have to evaluate before they accept a donation from a business that operates in the cannabis industry.


Primary Philanthropy Obstacles for Cannabis Companies


Currently, cannabis businesses have to overcome some big obstacles to find non-profit organizations to work with:

1. Taxes

Cannabis businesses are not allowed to claim many typical business expenses on their tax returns, which includes charitable donations (the infamous IRS 280E). This means that there is no tax benefit or incentive for cannabis business to make charitable donations to good causes. While there are some ways to get around this obstacle (depending on what part of the industry you’re in), until federal law changes and charitable donations from cannabis companies are treated the same way as donations from any other business (and taxed the same way), a smaller number of cannabis companies are likely to pursue philanthropy.

2. Federal Laws

Cannabis is still classified as a Schedule 1 narcotic by the US federal government, which discourages many non-profit organizations from accepting donations from marijuana companies, because it could put their non-profit in legal jeopardy. Some cannabis companies have had to use a “middleman” to make donations. For example, Miller Rail Farms wanted to donate to an elementary school in Calaveras County, california, but first they had to donate to a separate non-profit organization, which then donated the money to the school. The money was used to re-open pre-school and music programs, but had the cannabis company not donated the money to the third-party first, the school would not have accepted it.

3. Types of Donations

Cannabis companies can give back through monetary donations, product donations, and donations of their employees’ time. Many cannabis companies have had great success volunteering their time. For example, the team at California’s Bloom Farms volunteers to help at local service projects and food banks. In addition, Bloom Farms donates a meal to a local food bank for every product purchased at its dispensary.

There are a variety of charities that will accept these types of donations from cannabis businesses, but money and marijuana products are another story. For example, Colorado Children’s Hospital Foundation has explicitly stated that it won’t accept monetary donations from cannabis companies since banks won’t handle cannabis money.

As for product donations, depending on the state, cannabis companies face obstacles put in place that don’t allow marijuana product donations at all. For example, California released new regulations when adult-use marijuana became legal in 2018 that allow only medical marijuana dispensaries (and microbusiness license holders that are licensed to distribute marijuana products to patients) to give away marijuana products for free. However, the dispensary must pay the sales tax on those donations. This change in the law is causing problems for many compassionate care programs and patients in the state.


The Risks that Non-Profit Organizations Face When Accepting Cannabis Business Donations


1. 501(c)3 tax filing status

501(c)3 tax filing status isn’t easy to get (nonprofit federal tax exemption), and once a charitable organization gets that status, the non-profit doesn’t want to lose it. Accepting funds from a business that deals in a federally illegal substance could put a non-profit’s 501(c)3 status at risk. Therefore, some organizations won’t even consider cannabis-related donations at all. Others will discuss the potential risks with their attorneys and leadership before making a decision.

2. Reputation

Many non-profit organizations don’t want to be associated with cannabis companies at all. There is still a very heavy stigma associated with cannabis despite the fact that about two out of three American adults approve cannabis legalization. As long as cannabis is classified as a Schedule 1 drug, this perception is unlikely to change for some charitable organizations.

3. Funding

For charitable organizations that rely on federal funding, accepting donations from companies that are involved in an industry that sells a federally illegal product is simply not an option. Accepting such donations could result in the non-profit losing its federal funding and it eventually might have to close its doors.

The same is true of charitable organizations that rely on donations from individuals and large companies who might not approve of cannabis (for example, religiously supported charities). Until the stigma surrounding cannabis fades and the public’s perception of it is more positive, this risk will continue to prevent non-profits in need from accepting money from cannabis companies.


What’s Next for Cannabis Companies and Charities?


As the cannabis industry grows and markets mature, cannabis companies are generating profits that could be redirected to a wide variety of non-profits. Philanthropy is good for businesses, particularly cannabis businesses. It provides a boost to brand reputation and can help raise brand awareness. If tax rules change, monetary and product donations could also help cannabis business’ tax situations — as they do for businesses in other industries. This type of philanthropy is also good for charities because it can give them significant boosts thanks to monetary or resource donations.

What’s standing in the way right now are the rules and regulations — specifically, the law that puts cannabis on the Schedule 1 controlled substance list and tax rules that don’t help (or hurt) cannabis companies depending on their states (e.g., California). There is money to give and charities that need that money. The next step is finding a legal way to bring them together so everyone benefits.


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Resources:

  1. Want to learn more about subjects similar to those touched upon in this article? Check out our articles on subjects such as:
    1. The Devil is Always in the Details: How small details under AUMA matter
    2. Cannabis Business Insurance
    3. Oregon Consumer Protection
    4. M&F Talent Cannabis Career Tip of the Month: Job Durations
    5. Canna Cribs Episode 4: Los Sueños Farms — Pueblo, Colorado
  2. Want to get in touch with Cannabiz Media? They can be reached via the following methods:
    1. Website: https://cannabiz.media/
    2. Email: info@cannabiz.media

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About the Author

Susan Gunelius, Lead Analyst for Cannabiz Media and author of Marijuana Licensing Reference Guide: 2017 Edition, is also President & CEO of KeySplash Creative, Inc., a marketing communications company offering, copywriting, content marketing, email marketing, social media marketing, and strategic branding services