The cannabis movement has always had a benevolent streak. Many people produce and disseminate the plant to alleviate illness and suffering. Others support legalization for social justice reasons– unwinding the prison industrial complex, for example. And still others are simply interested in solving hard problems, such as the outsized environmental footprint of cannabis grows. When people of this general orientation approach our cannabis attorneys to start cannabis businesses, they often ask about “benefit company” status.
Over the past several years, most states in the U.S. have adopted benefit company statutes. Generally speaking, a benefit company is a type of corporation or limited liability company that considers its impact on society in making decisions. Sometimes, B Corps and B LLCs are said to have a “triple bottom line” which includes not just profits, but also the community and the environment. A few well known benefit companies include Patagonia and Ben & Jerry’s.
Because of the triple bottom line ethos, benefit companies do not impose a strict duty on their directors, officers, managers or members to maximize profits. This differs from a traditional corporation, where governing individuals can be exposed to shareholder litigation for failing to make decisions that maximize profits. Cannabis entrepreneurs, like business people in other industries, may find this element of benefit company status attractive.
Benefit companies may sound a bit like non-profit corporations, but they aren’t. For state and federal tax purposes, benefit companies are considered for-profit entities. They also tend to be structured no differently than for-profit companies, in terms of underlying company paper and personnel. Benefit companies do behave like non-profits in the sense that they are mission-oriented, but that’s about it.
Almost all states now accept benefit companies and follow the model B Corp legislation, which hasn’t been around all that long. As a result, the process of becoming a benefit company is fairly consistent from state to state. Some especially progressive states, like Oregon, have adopted a broader version of the benefit corporation law that allows founders to form benefit LLCs, in addition to corporations. In the Oregon cannabis industry, we have formed both kinds of companies.
In most states, forming a benefit company isn’t terribly difficult: as far as filing, it’s typically a “check the box” election that is made in the entity’s Articles of Organization (LLC) or Articles of Incorporation (corporation). It’s what comes after the election that takes some thought. The benefit company is required to adopt a third party standard to judge its efforts to accomplish a public benefit (such as the B Labs Impact Statement). Each year, the company must also draft a benefit report detailing its efforts in achieving its public benefit, and distribute the report to its owners and through its website.
Benefit companies often help owners and investors feel good about their enterprises, and, from a branding point of view, the B Lab certification is a great look. Looking back, the cannabis industry has made big strides over the past few years with respect to community integration and acceptance. Let’s see whether recreational pot businesses continue to embrace the benefit model, especially as key states like California come online in 2018.