In the cannabis industry, businesses face a long list of challenges—from banking and taxes to marketing and advertising—but do you know about the charitable challenges that marijuana businesses are facing? Many non-profit organizations either aren’t allowed to accept donations from marijuana businesses or they simply don’t want to accept those donations—even in states where marijuana is legal for recreational use.
Cannabis businesses that want to give back to their communities or to specific charitable organizations are often faced with push back from the very organizations that are so often desperately trying to raise money, 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 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:
Cannabis businesses are not allowed to claim many typical business expenses on their tax returns, which includes charitable donations. That means there is no tax benefit to making donations for marijuana companies. While there are some ways to get around this obstacle, until laws change 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 illegal substance at the federal level, which causes many non-profit organizations to refuse donations from marijuana companies. Therefore, some cannabis companies have had to use a “middle man” to make donations. For example, Miller Rail Farms had to donate to a separate non-profit organization, which then donated the money to an elementary school in Calaveras County, California. 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 great success donating 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 even marijuana products are another story. For example, Colorado Children’s Hospital Foundation has stated that it won’t accept monetary donations from cannabis companies since banks won’t handle cannabis money.
In terms of product donations, cannabis companies in some states face obstacles put in place through laws that don’t allow marijuana product donations at all. 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.
Primary Cannabis Company Donation Risks for Non-Profit Organizations
1. 501(c)3 tax filing status
The 501(c)3 tax filing status isn’t easy to get, 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 organization’s 501(c)3 status at risk. Therefore, some organizations won’t consider cannabis-related donations at all. Others will discuss the potential risks with their attorneys and leadership before making a decision.
Many non-profit organizations don’t want to be associated with cannabis companies. There is still a stigma in society related to marijuana despite the fact that about two out of three American adults approve marijuana legalization. As long as marijuana is classified as a Schedule 1 drug, this perception is unlikely to change for some charitable organizations.
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 not an option. If such donations are accepted, the non-profit could lose its federal funding and 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 marijuana. Until the stigma surrounding marijuana is lifted 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, marijuana companies are generating profits that could be directed to a wide variety of non-profit organizations. Philanthropy is good for cannabis companies. It provides a brand reputation boost 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 from monetary or resource (volunteers and products) donations.
What’s standing in the way right now are laws—specifically, the law that puts marijuana on the Schedule 1 controlled substance list and tax rules that don’t help cannabis companies and can even hurt cannabis companies in certain states (e.g., California). There is money to give and charities that need it. The next step is finding a legal way to bring them together so everyone benefits.
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. She spent the first half of her 25-year career directing marketing programs for AT&T and HSBC. Today, her clients include household brands like Citigroup, Cox Communications, Intuit, and more as well as small businesses around the world. Susan has written 11 marketing-related books, including the highly popular Content Marketing for Dummies, 30-Minute Social Media Marketing, Kick-ass Copywriting in 10 Easy Steps, The Ultimate Guide to Email Marketing, and she is a popular marketing and branding keynote speaker. She is also a Certified Career Coach and Founder and Editor in Chief of Women on Business, an award-winning blog for business women. Susan holds a B.S. in marketing and an M.B.A in management and strategy.