California Compassionate Cannabis Programs Look to Tax Bill to Stay Alive

California Compassionate Cannabis Programs Look to Tax Bill to Stay Alive

California’s Prop. 64 law pushed compassion programs into burdensome tax liability. One bill could solve the problem.

August 9, 2018

For more than 20 years, Joe Airone has been delivering free cannabis to low-income, terminally ill patients in the Bay Area. California’s 1996 medical marijuana law allowed groups like Airone’s Sweetleaf Collective to distribute cannabis to patients for personal medical use. Over the years, Airone says, he’d usually deliver cannabis by bike, six ounces to a patient, up and down the rolling hills of San Francisco.

Dozens of other collectives in California did much the same, providing medicine to the needy—until this year.

The regulatory scheme born out of Prop. 64, which went into effect Jan. 1, 2018, doesn’t have a place for nonprofit collectives like Sweetleaf. Each transaction that Airone completes—each delivery to an ill patient—is seen in the same light as a formal sale of cannabis at a licensed dispensary. More to the point, each transaction that Airone completes is taxed in the same way as a cannabis sale anywhere else in the state. 

“The real issue is that with Prop. 64 there was no distinction between commercial cannabis and commercial transactions—and noncommercial cannabis and noncommercial transactions,” he says. “Since there was not a distinction, noncommercial cannabis and transactions are being seen and taxed as if they were commercial. That’s where they’re coming from.”

Airone’s organization could face upward of $200,000 in taxes, he says, on the cannabis he’d planned to give away this year. That’s based on state and local retail tax estimates.

Last year, Sweetleaf Collective gave away more than 100 lbs. of cannabis to about 150 patients. As of August this year, Airone’s organization has given away somewhere between 10 to 15 lbs. of cannabis; Sweetleaf is simply unable to bear any further tax liability.

He and the other compassionate collectives in California are finding a ray of hope, though, in SB 829, introduced by State Sen. Scott Weiner (D-San Francisco). As Weiner explains on his website: The bill “exempts compassionate care programs from paying state cannabis taxes when they are providing free medical cannabis to financially disadvantaged people living with serious health conditions.” 

The bill, as currently written, would extend a compassionate licensee tax exemption to 2024 and would allow Airone to get back to doing what he needs to do.

The bill was referred to the Senate Appropriations Committee on July 3, where it has remained (as of Aug. 9). If the bill is not forwarded to a floor vote by the end of the legislative session on Aug. 31, it will essentially die. Because the bill is tax-related, it will require super-majority vote to advance to the governor’s desk: a full two-thirds of the legislature voting in assent.

In the text of SB 829, Weiner harkens back to the original intent of California’s 1996 medical marijuana law; “patient” would refer to “a qualified medicinal cannabis patient, as defined by the Compassionate Use Act of 1996 … who possesses a physician’s recommendation.”

Airone points to Ed Gallagher, a low-income veteran who’s completely blind and nearly deaf. He’s had HIV for 30 years, and Airone says he was recently diagnosed with cancer. 

“This is someone who needs free cannabis, so that he can stay alive,” Airone says. “And I’m being told by the state that I’m not allowed to give him free cannabis unless I fork over thousands of dollars—as if he’s paying for it and then I’m just taking part of that payment and giving the state their cut. But when there’s no payment being made, there’s no cut to give the state.”

Prior to Prop. 64, Sweetleaf and other collectives operated under SB 420 and Prop. 215, which led to the 1996 law and the collective model of compassionate cannabis distribution. Patients signed membership agreements, and collectives would cultivate, manufacture, transport and distribute cannabis around the state.

“We could do all of that with a binder full of paperwork,” Airone says. “Now, to do all of that, we would need four different permits. It would cost tens of thousands of dollars. We would need commercial locations in green zones. … The reason it’s so cost-prohibitive is because people are making money in the industry, so I can understand that. The thing is, we need to have caveats and we need to cut things out to make space for nonprofits in this industry.”

Airone points out that the dialogue that brought about Prop. 64 did acknowledge the nonprofit sector. Part of the proposition included a nonprofit feasibility study that would be conducted by Jan. 1, 2018. “They understood that there was a noncommercial side to our industry,” Airone says.

“This is the foundation of this industry, and that’s what I keep trying to bring back to the forefront. Prop. 215 was officially called the Compassion Use Act. Compassion was in the name, because that’s how we normalized cannabis."

- Joe Airone

When it came time to write the actual regulatory language of Prop. 64, though, the government punted the study to Jan. 1, 2020.

“Now we have two years where the state is saying that they don’t know how to handle the nonprofit sector of the industry, when the nonprofit sector of the industry is the one giving free cannabis to people who are dying,” Airone says. “We’re concerned, because our patients are already terminal.”

And while this fight is new to Airone this year, this work has been a part of life for a long time.

“I started Sweetleaf in 1996. I’ve been operating compliantly with no problems for over 20 years,” Airone says. “This isn’t something that we just came up with a few months ago. These people have been counting on Sweetleaf and the compassionate cannabis that we provide, free of charge, to sustain their lives.”

“We’re still providing cannabis to people through the regulated framework, but the impact that we’re able to have is much smaller than any year previous,” Airone says. “We have cultivators that are permitted. … They donate product to us; the product that is donated to us is pre-2018, so there was a different situation with taxes. That product goes to the distributor.”

Distributors like True Humboldt and Flow Kana ensure that the cannabis is tested through labs like Deibel Labs, then deliver it to dispensaries like Magnolia Wellness in Oakland. In June, Flow Kana gave away $13,000 in free cannabis to terminally ill patients.

“That’s the current model we’re using,” Airone says. “I’ve just been having to pivot. My whole thing is that I want to make sure that this medicine is getting to the patients. I can’t do my old model, so I’ve had to rearrange everything this year to still be legal.”

Still, though, Airone intimates that there are plenty of individuals and groups that have taken compassionate programs underground, distributing free cannabis away from the regulated market. Airone says the phrase “black market philanthropy” is being bandied about the state these days.

“The sad state of affairs now is that we are having people who have to break the law to help other people and to save lives,” he says. “Lives are on the line. Pardon my French: This is no f---ing joke. People are dying because we can’t legally get them free cannabis that is being donated to us.”

Until something happens, Airone is actively raising money to pay for the taxes he’s accruing on Sweetleaf distribution—and for the cultivation taxes accrued by growers who’ve donated cannabis to his group.

“They have to pay to take a loss on their profits,” Airone says. “They’re not just taking a loss by giving away the cannabis, they’re taking even more of a loss because they have to pay these taxes just to give the cannabis away. It’s so backwards.”

The matter came up at the Bureau of Cannabis Control’s March 15 advisory committee meeting.

“Many of the items that are being tabled are about a health crisis of compassionate care,” Lindsey Comey of other compassion collectives, Operation EVAC and Weed for Warriors, said. “I’m dealing with patients that are in pain, that are not able to get their medications, because this bureau has put a stranglehold on donations and compassion.”

The committee recommended that a cultivation-based tax incentive be created for cannabis products being set aside for compassionate programs. The cultivation subcommittee called it a “priority.”

When the state released a draft of permanent rules in July, however, there was no mention of compassionate use programs or nonprofit cannabis entities. (The BCC will host another public hearing on the proposed rules from 10 a.m. to noon Aug. 14 at the Millennium Biltmore Hotel in Los Angeles.)

“I am going to do everything in my power to get this figured out as quick as possible,” Airone says. “Unfortunately, with all my efforts, nothing has really happened—except for SB 829. And if SB 829 passes, that will remove all taxes to compassionate cannabis.”

What happens in the coming months—whether a fix is arranged for  California’s compassionate cannabis programs—will be read by Airone and others in the nonprofit niche of the industry as a referendum on the legacy of cannabis and the decades of activism that led the state to Prop. 64 in the first place.

“This is the foundation of this industry, and that’s what I keep trying to bring back to the forefront,” Airone says. “Prop. 215 was officially called the Compassion Use Act. Compassion was in the name, because that’s how we normalized cannabis. … That’s what compassion is: It’s the people who need the most help in our country. It’s the underserved people. It’s homeless veterans. It’s terminally ill HIV patients living in San Francisco. It’s children with intractable epilepsy and cancer. This medicine is saving lives."

Top photo courtesy of Adobe Stock. Photo of Ed Gallagher courtesy of Joe Airone.