Nonprofits Have an Unexpected New Source of Funding: State Marijuana Revenue

Fathers and Families of San Joaquin, a small nonprofit that serves young people and people who have been through the criminal-justice system, got a big influx of money in 2019. The $1 million grant came from a surprising source — California’s marijuana sales.

The group, whose revenue was about $2 million a year before receiving the grant, trains formerly incarcerated people as substance-abuse counselors. Former inmates conduct workshops and training for young people in youth correctional facilities. The group has rapid-response teams for domestic abuse and child abuse and has partnered with a Native American substance-abuse program for healing ceremonies.

So many of the problems the organization tackles in and around Stockton, Calif., can be traced to the war on drugs, says Samuel Nuñez, the group’s executive director. He remembers police officers knocking down his front door when he was a child — something he says was common in his neighborhood — and his mother sitting terrified on the floor. Nuñez was in and out of juvenile facilities, nearly died at 18 from a shotgun blast, and served time in prison for retaliating. Then he changed his life.

“They were fiercely policing our communities, they were traumatizing us,” Nuñez says. Young men grew up without fathers because they were behind bars.

Leonel Munguia

Over the past two years, California has tried to reverse some of the damage. The state is using some of the fees it collects from the sale of recreational marijuana to give grants to community groups like Fathers and Families that serve people and communities harmed by the war on drugs. So far, the state has awarded nearly $100 million, a figure expected to jump to $175 million in May.

California is not alone. Alaska and Illinois have similar programs, and as more states legalize the drug, additional programs could be on the way. In the 2020 election, voters in Arizona, Montana, New Jersey, and South Dakota approved measures to legalize the recreational use of marijuana. At the end of March, the New York state legislature passed a marijuana legalization bill that will set aside 40 percent of tax revenue for grants to community groups and local governments to help communities disproportionately affected by harsh drug policies.

Nonprofit Champion

Proposition 64, the ballot initiative that legalized the nonmedical use and sale of the drug, set aside funds from marijuana sales fees for a variety of things, including community grants — but there weren’t a lot of details about how it would work and there was only a single mention of targeting communities harmed by past drug policies. When the proposition passed in 2016, a longtime advocate saw an opportunity to influence how the state would distribute the funds.

Jim Keddy had worked with the state on how to distribute funds from tobacco settlements and serves on a state board that oversees how money for tobacco research, control, and prevention is distributed. He started Youth Forward, the nonprofit he leads, to push the state to earmark some of the marijuana fees for charity.

Youth Forward received funding from the California Endowment, whose board Keddy once served on.

A relatively small investment — $285,000 over two years from the California Endowment and a few smaller grants — has helped bring about nearly $100 million in state dollars to small nonprofits that focus on substance-use prevention, addiction counseling, and youth development.

Keddy talked to the Governor’s Office of Business and Economic Development and the Department of Health Care Services, both of which would receive the funds. He also brought together racial-justice and policy groups and put together recommendations on how best to use the funds to address fallout from the war on drugs. One goal was to make sure that funds went to small community-based groups run by people of color that often serve or employ people who have been incarcerated or have otherwise been affected by drug policies.

Game-Changing Grants

The system that California set up has been particularly beneficial to smaller groups that are closest to these communities, says Bonnie Midura, a senior program manager at the California Endowment. State agencies often have rigorous application requirements for nonprofits that can shut them out of the process.

“A great success of this effort has been the ability to think of the state less as a public agency and more as a philanthropic partner,” she says.

The health department created Elevate Youth California to distribute the funds and then contracted with a grant maker, the Center at Sierra Health Foundation, to manage and staff it. Elevate Youth makes grants and provides other assistance to groups that fight youth substance abuse. The program received about $21.5 million in cannabis revenue in 2019, which it distributed to 26 nonprofits, and $29 million in 2020, which it awarded to 32 organizations in November.

About 45 percent of people served by the programs that have won grants are Latino and 35 percent are Black, says Matt Cervantes, the foundation’s director of health programs. Since receiving the grants, many of the groups have had to pivot to virtual programs and invest in new technologies for the young people they serve.

Terry Larue

The foundation has been flexible about how groups use the funds as they serve clients during the pandemic. That’s been important for the Northern California Indian Development Council, which provides health, wellness, and counseling services for native families and youths in the northern part of the state. Thanks to the grant, it has been able to create its Da’luk Youth Program, which serves native middle school and high school students.

The organization has not been able to provide in-person services this year so some of its nearly $1 million grant has gone to moving programs online and helping participants get internet access. The grant program provided assistance and training to help make that happen.

Many of the grantees rarely receive such large amounts of money.

“I’ve had a number of conversations with these organizations where they’ve told us that these are the largest grants that they’ve ever received,” Cervantes says. “These are well-known advocacy organizations from across the state that have deep history in the philanthropic sector. But a $1 million grant over three years, that can be a total game-changer.”

That was the case for Painted Brain, a relatively new nonprofit in Los Angeles that together with another organization received a three-year, $900,000 grant from the Governor’s Office of Business and Economic Development. Painted Brain provides mental-health services, art programs, job training, and placement services as well as legal help for people with mental-health challenges. The pandemic was hard on the group because much of its revenue comes from providing direct services, many of which were shut down last year. With the state funding, it has been able to expand programs and think about its future.

“It provides a predictability and security for our organization that allows us to actually think bigger and think about what we really want to be doing,” says Dave Leon, the organization’s executive director.

Ethical Concerns

Alaska is also making grants to nonprofits from revenue set aside from recreational marijuana sales. Although the state decriminalized marijuana in the 1970s, a 2014 ballot initiative set up a marketplace for legal sales.

Commercialization sparked concern about potential increased use of the drug by young people, says Thomas Azzarella, director of the Alaska Afterschool Network, which advocates for and supports youth programs. The state allocated 12.5 percent of its revenue from marijuana sales to fund after-school prevention programs. Azzarella says that young people who are in such programs are 2.5 times less likely than their peers to use marijuana.

Alaska Afterschool Network

Azzarella’s group provides program advice to grantees. Alaska recently awarded its first round of grants — $1.25 million to seven organizations, both large established groups like the Boys & Girls Clubs and small community groups. Unfortunately, the need still outstrips the available funding: It received requests for about $2.5 million.

Illinois legalized recreational marijuana sales in January 2020. About a quarter of the state’s revenue from cannabis goes to organizations that work on civil legal aid, re-entry from prison, violence prevention, economic development, and business development in communities that were hurt by past drug policies. The program is overseen by a board made up of elected officials, community members, and people who have been through the criminal-justice system. So far, it has made 80 grants totaling $31 million.

Not all grant makers and nonprofits embrace money tied to marijuana. Using funds generated by the sale of marijuana means programs designed to stop people from using marijuana end up relying on drug use for support.

It’s something Azzarella has thought about a lot. He knows he is not going to stop legalization. For him, it’s a question of how to work within the system to do the most good. “We are not for or against the industry. We recognize if legalization occurs, we need to be focused on prevention,” he says. “With the new industry comes additional risks and hazards. And this is our way to ensure that the industry is a good partner.”

Keddy says few people in philanthropy recognized the opportunity in the cannabis revenue funds — and were willing to support his effort to get that money to nonprofits.

“A lot of philanthropy, you talk to them about engaging on cannabis policy and it’s just like it’s icky to them,” he says. “They don’t want to be around it.” While younger foundation executives are more open to the business, he says the older ones just don’t want to get involved.

At the California Endowment, which did support his efforts, there was some initial concern that getting involved with marijuana revenue funds would mean condoning the use of the drug, Madura says. But comparing the idea to the state’s use of cigarette taxes to fund children’s programs was helpful. People are going to use marijuana, just like they are going to use cigarettes, she says. The question then becomes how to use that money to help people before they use the substance rather than addressing health concerns after the fact. It also presented an opportunity to repair some of the harms caused by the criminalization of the drug.

“There are these dollars coming in. They belong to the people of California,” she says. “How can they be invested in the most disproportionately impacted communities in California?”

New Attention

Nuñez with Fathers and Families of San Joaquin says the money his group received is small recompense for the violence and trauma visited upon his community. But the recognition the grant brought has opened doors for his group.

“Proposition 64 funds definitely elevated our profile and actually gave us the opportunity to prove our model,” he says. He says the organization’s programs have led to some of the lowest recidivism rates in the state. For a long time, Nuñez struggled as a former convict to raise money and get policy makers to take notice.

Now city officials are interested in understanding more about his work. He says the grant was critical in drawing attention to his methods, and the results speak for themselves. “We’re so proud.”