Molly MacDonald, CEO of Southfield-based The Pink Fund, which offers financial assistance for nonmedical bills to breast cancer patients, appreciates the recent $50,000 donation from a local cannabis business, even though she's not familiar with the intricate federal regulations governing cannabis.
"We take financial donations from almost everyone," said MacDonald. Patients supported by The Pink Fund often struggle to pay rent, mortgages, utilities, and car loans due to income loss while undergoing medical treatments.
Non-cannabis companies frequently donate to nonprofits and benefit from tax deductions. However, the cannabis industry, which is legally obligated to meet social equity requirements, often donates without expecting such tax benefits. Josey Scoggin, executive director of the Great Lakes Expungement Network, highlighted that their group relies heavily on donations from cannabis businesses. She noted that 88% of their donors do not request receipts, aware that their contributions are not tax-deductible.
Cannabis companies navigate complex federal laws, which still classify cannabis sales and use as illegal. The IRS prohibits deductions beyond inventory costs for businesses involved in Schedule I or Schedule II drugs, including cannabis. This rule applies even in states where cannabis is legalized, as federal law under the Controlled Substances Act prevails.
Michigan, which legalized recreational cannabis use in 2018 and medical use in 2008, has seen its cannabis industry flourish. In May 2024, sales of recreational and medical cannabis products reached $279.6 million, a nearly 14% increase from May 2023's $245.9 million.
The U.S. Department of Justice is considering reclassifying cannabis from a Schedule I to a Schedule III drug, which would align it with substances like ketamine and anabolic steroids. This reclassification could open access to traditional banking systems and standard business-tax deductions for cannabis businesses.
Attorney James Allen explained that the Federal Controlled Substances Act currently hinders financial services for the cannabis industry, although legislation such as the SAFE Banking Act aims to change this. While the House has approved the Act, it awaits Senate approval.
Despite the federal restrictions, cannabis-related businesses manage their financial transactions through specialized institutions. The Justice Department focuses on illicit cannabis sales rather than state-approved activities, allowing some level of banking for the industry.
Cannabis business owners like Jerry Millen of The Greenhouse of Walled Lake advocate for national legalization to access standard banking services and reduce financial complexities. Millen employs a certified professional accountant specialized in cannabis and incurs high banking fees due to the intricate regulations.
Paul Tylenda, an attorney for cannabis businesses since 2019, noted that early cannabis companies in Michigan relied on specialty credit unions. As the industry grew, some regional banks began offering services, albeit at higher costs due to perceived risks.
Many cannabis companies now operate under larger holding companies that manage non-cannabis activities, allowing them to utilize standard business deductions, including for charitable donations.
Michigan's cannabis industry is awaiting the potential reclassification to Schedule III, which would integrate cannabis businesses into the mainstream economy, allowing for regular business operations and standard charitable contributions.
In October, Puff Cannabis, based in Madison Heights, announced a $50,000 donation from product sales to The Pink Fund and the Chaldean Community Foundation. The Pink Fund received $11,000 from Wana Brands and $40,000 from Oak Canna, partners in the Puff Cannabis donation.
Public comments on the proposed federal marijuana reclassification are open until July 22. More information can be found at the Federal Register's website.
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