The growing and selling of marijuana is almost officially legal in San Luis Obispo County. In fact, the San Luis Obispo County Board of Supervisors is currently scheduled to adopt a permanent ordinance for cannabis land use regulations on October 3, 2017. In the next few months, marijuana promises to become very big business in our local economy – a potential challenge or an opportunity for many local nonprofits.
As the legal cannabis industry grows, is your nonprofit ready to accept or deny charitable contributions from cannabis-related businesses? If not, it may be time to have a board discussion on the topic. It may take several years before the legal regulations governing cannabis-related contributions – if there will be any – are fully defined. In the meantime, it would be wise to have a formal policy to guide your organization.
Here are a few points to consider:
If the funds being donated were obtained from legal means, you may accept them. Never knowingly accept donations that come from revenues related to the sale of heroin or other illegal drugs or activities. Be sure to define a process for vetting donors before accepting gifts. The California Secretary of State’s website can be helpful in verifying legitimate businesses and personal references can be a resource for vetting individual donors you may not know.
And, speaking of legal parameters, there is some current confusion on this topic for nonprofits that receive federal funds. Most federal grant contracts stipulate that the recipient organization must not violate any federal laws and doing so will cause a forfeiture of the federal funds. However, while selling and using marijuana for recreational purposes currently remains a federal crime, there is no federal or state law prohibiting nonprofits from accepting gifts from cannabis businesses. As long as your nonprofit is not growing, selling, or distributing recreational marijuana, you will be in compliance with federal laws. (As always, be sure to carefully review and abide by all federal contract provisions as they may evolve and change.)
Because marijuana is being legalized in California, the debate to accept contributions from the cannabis industry is less a legal one and more an ethical one. It’s up to your board of directors to determine what are the ethical standards or expectations to which your organization will adhere. As an example, consider a tobacco business wants to make a donation to a cancer-related nonprofit. There are two schools of thought the nonprofit could employ:
- The tobacco business is causing the problems we are trying to solve. Why shouldn’t it be held accountable and contribute to the solutions we are creating?
- The tobacco business is causing the problems we are trying to solve. It is an enemy to our mission and we cannot be associated with it in any way without losing our credibility and integrity.
Both are points are fair and reasonable. Does the use or growing of marijuana negatively affect the work of your organization? Will accepting a contribution from a cannabis business cause you to lose the support of donors? Can you afford to lose those donors? Alternatively, if accepting a significant donation from a cannabis business will allow you to dramatically increase the number of clients you serve, do you have an ethical obligation to accept it in order to do more of your good work? Again, there is no single “right” answer that will serve all nonprofit organizations. It’s up to you to determine which answer best serves the men, women, children, plants, and/or animals who rely on your mission and programs.
Lastly, take steps to understand what is motivating a cannabis business to make a donation to your organization. Cannabis business are not recognized by the federal government. And, it is the IRS, a federal agency, which authorizes tax deductions for charitable contributions. Therefore, unlike other businesses, cannabis businesses will not be able to receive a charitable deduction for the gifts they make (at least until federal law changes). Is the cannabis business making a contribution in hopes of receiving brand exposure or awareness? If your nonprofit serves minors, promoting a cannabis business may present an ethical conflict. On the other hand, if the cannabis business is making a contribution in honor of an employee or friend who benefited from your program, no ethical conflict may exist.
If you decide to accept contributions from cannabis businesses, remember to:
Update and/or finalize your nonprofit’s gift acceptance policy accordingly. It’s hard to anticipate every unusual gift you may be offered, so be sure to outline conditions when legal counsel will be sought for guidance and to ensure legal compliance. Remember, Spokes has sample policies to help guide you.
Keep it in California. Only accept gifts from those recognized businesses that are incorporated and located in California. If a cannabis business located in Arizona (where selling recreational marijuana is illegal), or even Washington (where selling recreational marijuana is legal), wants to make a donation to your organization, be cautious and avoid the risk. Especially if you are exchanging any goods or services for the gift (e.g. tickets and advertising for an event sponsorship). Conducting business across state lines could place your nonprofit in the jurisdiction of the federal government and a tricky gray area.
Be consistent. Once you set your policy, stick to it and treat all donors the same. Borrowing from the example above, if you feel it is unethical to promote a cannabis business as a donor because your organization serves minors, you’ll need to hold the same standard for the many wineries and breweries that generously contribute to the nonprofit sector and also sell a product that is illegal for minors.
Follow your mission – doing so will always protect your organization. Various government agencies and the insurance industry are still grappling with how to define and protect the insurable interests relevant to cannabis businesses. To protect your nonprofit from a potential or emerging insurance risk, always use the donated funds received for clearly defined mission-related activities and expenses. Avoid accepting restricted gifts for new programs or activities requested by the cannabis business donor that are not closely aligned with your mission or current strategic priorities.
File IRS tax form 8300 when you receive more than $10,000 in cash from a single donor in a single donation or two “related” donations. For now, most cannabis businesses are unable to bank like other businesses and are forced to operate on a cash-only basis when paying for everything from rent to contributions. To protect your organization from unwittingly participating in illegal money-laundering activities, complete and file form 8300 within 15 days of receiving the funds. Ask a CPA for guidance, as necessary.
Continue your board’s discussion of the ethical concerns they may have regarding cannabis-related contributions (as well as all other types of contributions). Good leadership requires a willingness to make the best decision possible with the information that is currently available. As new information and understanding becomes available around the cannabis industry, new decisions may be necessary. Evolution is expected and responsible. Discuss, decide, and document your process.
We will continue to research issues related to cannabis-related contributions and look forward to updating you on new information and best practices we discover. If you have a related experience or story to share with us and the Spokes community, please contact us.