Cannabis Gives Back

Or at least its trying to.

A recent article in the Denver Post raised the issue of charitable giving from cannabis businesses. Many nonprofits refused the accept donations from the Colorado Harvest Company – a chain of shops and a shareholder with O.penVape – for fear of the ramifications. Organizations walk a fine line when soliciting corporate donations from politically charged companies, such as those selling cannabis.

Philanthropy is an important part of our culture and corporate giving is a responsible way for businesses to give back to their communities. Corporations of all kinds have programs that provide literacy support, funding for community beautification projects, or resources for volunteer cleanup events. Why should cannabis companies – if they want to use their profits for the social good – be treated any differently?

There are a couple of considerations that nonprofits have regarding this issue: fear of losing their nonprofit status or federal funding and the misalignment of organizational goals.

Fears relating to the federal government may be somewhat justified. There is merit to the argument that many nonprofits may lose federal funding under the Trump Administration’s proposed budget, so there is a perceived heightened risk of accepting corporate donations from cannabis companies.

Losing a 501c3 status status would be devastating for any nonprofit, and there is a lack of clarity in our legal system stemming from the novelty of state-level marijuana legalization. Can a nonprofit registered and doing business in a state that legalizes cannabis lose their 501c3 tax status for accepting donations from companies selling marijuana? Inevitably, this question will emerge in the courts.

As more states work to legalize cannabis, nonprofits should be able to entertain contributions form this dynamic and growing industry. Diversifying contributed revenue streams is a best practice solution for all nonprofits and corporate giving is part of the equation. Corporations that deal in legal commerce shouldn’t be treated any differently from the rest, especially considering that the medical use of cannabis is a legitimatizer that other substances – such as alcohol – lack.

Marijuana Tax for Good? It’s Still Regressive

(Marijuana plants growing at a dispensary)

The city of Aurora, Colorado has chosen to spend some of its tax revenue from marijuana sales on a worthy project.

City officials announced plans to spend $1.5 million of the projected $4.5 million in marijuana tax revenue it will take in over the next two years on combatting homelessness and supporting other nonprofit causes. To kick off the new initiative, Aurora City Council members voted to direct $220,000 to the Colfax Community Network to cover general operating expenses. The vote also included the provision of funding for Comitis Crisis Center and Aurora Mental Health for homeless outreach.

Los Angeles is considering a similiar approach with a tax on revenue from medical marijuana, which – should the proposed measure pass – could generate up to $16.7 million annually. If the state fully legalized marijuana as Colorado, Washington, Alaska, and Oregon have done, the resources generated for anti-homelessness programs in California would greatly expand beyond that figure.

While the emergence of a brand new revenue stream directed toward social good causes is objectively positive, the fact remains that the resources stem from a regressive tax. Sin Taxes – as tariffs that tax habits considered unhealthy by the general consensus are known – have attracted disapproval from across the political spectrum for their negative impact on poorer Americans.

Along with other forms of regressive taxation – such as sales taxes – these tariffs disproportionately harm economically disadvantaged citizens, who are less equipped to cope with the larger hit on their finances that certain consumer behaviors cause. Smokers, drinkers, and gamblers are the traditional targets of such taxes.

A recent trend also includes higher taxes on sugary beverages and fatty junk foods.

Ostensibly, these taxes are intended to alter behaviors that have a negative effect on society while generating revenue to account for the deleterious results that stem from those behaviors. But as a trio of economists discussed in an op-ed for U.S. News, the taxes do not quite achieve their supposed aim:

[T]he orthodox justification for sin taxes was that they would reduce the costs smokers, drinkers, and gamblers impose on others—drunk driving, exposure to secondhand tobacco smoke, and losing the family paycheck at the craps table. But that rationale was a nonstarter because of the relatively small impact these taxes have on the sinful consumers’ behavior. Such taxes may “nudge” consumption in the desired downward direction, but bad habits are hard to break.

As these and other economists argue, there is evidence that these taxes produce a positive social benefit. And while wealthier citizens can simply stomach the higher cost of their favorite bad habit, poorer citizens are financially sapped. Indeed, the further immiseration lends itself to a feedback loop, in which people living in an increasingly stratified economy with less money turn to their bad habits for solace.

A widely-discussed study from last year supported these claims, finding that white working Americans have seen a decline in life span, resulting in part from greater alcohol and drug abuse attributed to economic insecurity.

The tax on marijuana in Colorado is actually lower than the rates applied to alcohol and gambling. Nonetheless, the simple fact that the burden of the tax – like all consumption taxes – falls primarily on the poor gives one pause for thought: Why do so many initiatives aimed at helping the poor fall largely on the backs of poor taxpayers?

The increase in revenue for the homeless in Aurora is good news, but this qualified success should not halt efforts to design and implement more equitable, just alternatives to public social good fundraising.

Nonprofits and Marijuana: Lawsuit Threatens Tax-Exempt Groups

A small nonprofit is at the center of a legal battle in central Illinois concerning the contradictory relationship between the federal government and state governments that have enacted some degree of marijuana legalization.

An attorney representing Shiloh Agronomics – a private company which was denied a medical marijuana license – has asked a judge for permission to file a lawsuit against license-recipient Shelby County Community Services, an organization that assists people with issues ranging from autism to substance abuse. According to Executive Director Tom Colclasure, the medical marijuana license is to provide jobs for between 25-30 people with disabilities, as well as revenue for the nonprofit in the face of declining state government funding.

In 2013, Illinois became the 20th state to legalize medical marijuana. Several states – including Oregon, Washington, and Colorado – have legalized the recreational use of marijuana. A handful of cities and towns, such as Portland and South Portland in Maine, as well as Washington D.C., have also passed recreational cannabis laws (though the implementation of D.C.’s law was blocked by Congress).

Under federal law, marijuana is still classified as an illegal narcotic, though the Obama Administration announced that it would permit states to proceed with legalization so long as they adhere to a number of guidelines, largely designed to prevent interstate trafficking.

Shiloh Agronomics’ petition is an attempt to leverage federal law against the nonprofit. Jude Sullivan, daughter of company stake-holder James Sullivan, told the Chicago Sun Times that, “because Shelby County Community Services is a federally recognized 501(c)(3) tax-exempt entity, it is not eligible to apply for a permit to engage in an activity that violates federal law.”

The legal classification of cannabis – however slowly – is changing. As the process inches forward, various legal challenges will emerge. Perhaps this lawsuit presents an opportunity for nonprofits operating in cannabis-friendly states to iron out any issues that could bar them from fully taking advantage of local laws, and could even lead to a higher court and a federal ruling in support of equal rights for nonprofits under the law.

Considering the positive ends for which Shelby County Community Services applied for the license, as well as the de facto legalization granted by the federal government, the petition’s argument against the nonprofit is more technical than it is reflective of the moral and legal zeitgeist. The legal entitlement expressed by Shiloh Agronomics is arbitrary, and should not lead to a precedent that unnecessarily puts tax-exempt nonprofit organizations at a competitive disadvantage.

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