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California Rights a Cannabis Accessibility Wrong Via Nonprofit Tax Reformation

Aug. 23, 2021, 8:01 AM

California recently welcomed the latest in a series of disruptive cannabis nonprofit tax laws: Senate Bill 34, the Dennis Peron and Brownie Mary Act of 2019.

Unlike its predecessors, this transformative tax shift was eagerly awaited by compassionate nonprofit California cannabis networks, as it corrected a nearly two-year patient accessibility mistake. The names Dennis Peron and Brownie Mary may sound familiar to Californians—S.B. 34 was named for these Californian medical access pioneers and Proposition 215 authors. Dennis and Mary were drivers of community cannabis efforts that sought to put the healing plant into as many patients’ hands as possible.

The Sweetleaf Collective has likewise pushed for decades to help patients access free medical cannabis in the San Francisco Bay Area. The nonprofit collective began serving HIV/AIDS patients in 1996 under the Compassionate Use Act and expanded to a wider range of low-income people, who are disabled, terminally ill, or experience other conditions, including homelessness, which generally restrict traditional access to medical cannabis. The Compassionate Use Act was revolutionary—allowing for cannabis growers and distributors to donate part of their crop to intermediary nonprofits like Sweetleaf, which then connect the product to low-income patients in need.

While cannabis champions across California cheered in 2016 for the passage of Prop. 64, which created a legal market for adult-use marijuana sales, nonprofit compassionate cannabis collectives like Sweetleaf quickly cried foul on a gaping tax hole that the very fabric of the new legal system.

The nonprofit tax problem with Prop. 64 was simple and the effects extreme. When California legalized recreational cannabis, commercial and non-commercial cannabis were taxed at the same rate, and any cannabis that left a shop was treated as taxable. According to The San Francisco Chronicle, “That meant cannabis was taxed the same—at rates that sometimes exceeded 38%—whether it was donated or sold for profit.” This loophole turned cannabis nonprofits upside-down financially, as they’d now be required to pay taxes on charitable donations.

From 2018 to 2019, marginalized medical patients suffered unnecessarily from a convoluted, expensive nonprofit cannabis tax snafu. These patients are often priced out of programs because of cost, and none or very few health insurance options provide aid in covering the cost of access to medical cannabis.

Sweetleaf was forced to cut service to patients at a level between a quarter and a third of its regular capacity. The reduction was directly due to tax costs on donations that limited fundraising and efforts to build a newly mandated, state-approved supply chain. The entire business model for Sweetleaf, which had functioned exceedingly well for two decades, had to be completely altered, incurring more costs and further reducing the aid output.

To the relief of patients and cannabis nonprofits alike, after years of lobbying S.B. 34 met legislative success in 2019, allowing compassionate care organizations to fully function again as nonprofits. For Sweetleaf, this meant a return to a successful model of bulk product influx with no taxed donations and minimal state interference. California is also now less directly involved in the management of supply chains, because the California Cannabis Track-and-Trace system is up and running, ensuring compliance and transparency across the many distribution avenues in the state.

While these gains are huge, there’s always room in a system for improvement.

Nonprofit compassion programs are unable to be directly involved in the production or growing end of the supply chain in California, as no license option currently exists. This means these programs must take the time, effort, and resources to network and vet potential collaborators and partners in the supply chain before getting off the ground.

Awareness and fundraising are two hurdles that every compassionate cannabis nonprofit must clear over and over. Fundraising through donations hit a wall for a few years as mentioned above. Without awareness, fundraising is altogether impossible. While the cannabis industry at large has become a mainstream focus, the nonprofit cannabis sector is often both a blind spot and a breath of fresh air. The nonprofit sector is largely unknown to the general population, but those who are critical of large cannabis industry players and believe in the healing capacity of cannabis often find a home in the realm of compassionate cannabis care.

If compassionate care cannabis programs are something that spark your interest, take heed from the lessons California’s tax mistakes have to teach. All states should have nonprofit protections in place for compassion programs, so they may thrive and provide equal accessibility to medicinal cannabis for all people. California’s corrective efforts are laudable, and the efforts toward constant growth and improvement within the state should be mirrored by other states and regions seeking to ensure accessibility and compassion.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Joe Airone is the founder and director of the Sweetleaf Collective. He has been an activist in the San Francisco Bay area for more than 20 years, working with groups providing food to the elderly, shelter to the homeless, and cannabis to low income terminally ill people.

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