HARMON CURRAN NONPROFIT LAW BLOG

Currently, under the Federal Controlled Substances Act, it is illegal to manufacture, distribute, or dispense, or possess with an intent to manufacture, distribute, or dispense, certain controlled substances, including marijuana, outside the context of Federally-approved scientific study.  Despite the increasing medically-accepted uses of marijuana and marijuana derivatives (such as Epidiolex, an FDA-approved drug to treat certain forms of epilepsy) and socially-accepted recreational use of marijuana, marijuana remains classified as a Schedule I controlled substance, which is a category that generally describes substances with high abuse potential, no currently accepted medical use, and no accepted safety standard for use under medical supervision. 

There is some interest in Congress for removing marijuana from the controlled substances list and otherwise decriminalizing its use, manufacture, and distribution on the federal level.  The Marijuana Opportunity Reinvestment and Expungement (MORE) Act passed the U.S. House of Representatives on April 4, 2022.  Versions of the MORE Act were introduced in 2019 and 2020, with the 2020 version also passing the U.S. House of Representatives.  However, the MORE Act lacks bipartisan support and is unlikely to pass the Senate at this time.

Although Federal law has not yet changed with respect to marijuana, the states have been moving toward decriminalizing marijuana since the 1970s.  In the late 1990s, the states began permitting access to medical marijuana.  The most recent trend is states permitting recreational use of the drug.  Currently, the states that permit marijuana use are a patchwork that range from only permitting use of cannabidiol (CBD) products, which utilize a non-psychoactive component of marijuana (and may also be legal under Federal law if derived from hemp), to regulated adult recreational and medical use. 

When it comes organizations that are exempt from Federal income tax under Section 501(a) of the Internal Revenue Code, the Internal Revenue Service announced in Revenue Ruling 75-384 that an organization is not described in Section 501(c)(3) or Section 501(c)(4) of the Internal Revenue Code if its primary activities are illegal under state or Federal law.  Since approximately 2012, the IRS has applied this illegality doctrine to organizations seeking recognition under Section 501(c)(3) and 501(c)(4) that engage in activities related to the use or promotion of use of marijuana, such as a clinic using marijuana in a therapeutic context, a medical marijuana dispensary, an organization providing financial aid to persons unable to afford medical marijuana, and an organization selling marijuana medicinal products. 

With respect exempt organizations described in other paragraphs of Section 501(c) whose activities involve marijuana, the IRS has refused to issue determination letters.  In 2018, the IRS announced in Revenue Procedure 2018-5 that it would not rule on the status of an organization seeking recognition as business leagues under Section 501(c)(6) if the organization’s “purpose is directed to the improvement of business conditions of one or more lines of business relating to an activity involving controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act) which is prohibited by Federal law regardless of its legality under the law of the state in which such activity is conducted.”  This year, the IRS doubled down on this position and announced in Revenue Procedure 2022-5 that it would not issue determination letters to organizations seeking recognition under Section 501(c)(5) as labor, agricultural, or horticultural organizations that engage in activities involving those controlled substances.

Although exempt organizations generally cannot engage in more than incidental activities that are illegal under state or Federal law, exempt organizations, including Section 501(c)(3) and 501(c)(4) organizations, generally may advocate for a change in the legal status of prohibited activities, including with respect to the use of marijuana.  The usual restrictions apply to a Section 501(c)(3) organization’s lobbying activities with respect to marijuana as to its lobbying activities with respect to any other topic – that is, a Section 501(c)(3) organization’s lobbying activities must be insubstantial.  No such limitation exists for a Section 501(c)(4) organization, provided that the organization is not advocating the illegal use of marijuana and not promoting or encouraging the use of marijuana prior to legalization.  However, navigating the limitations on advocacy activities can be complex and may be easier with the help of experienced attorneys.  If your organization is considering advocacy activities regarding the legalization of marijuana, consider contacting us to discuss in greater detail.