Cannabis Covid 19 Crisis- You may be asking yourself, what is the US government going to do for OUR green industry?
As the United States implements its economic response to the COVID-19 crisis, perhaps no industry has been more underserved than the cannabis industry. Under the CARES Act, the federal government is in the midst of providing unprecedented levels of support for small businesses throughout the U.S. economy. Yet cannabis businesses are prohibited from obtaining relief, putting the entire industry and its 250,000 jobs in jeopardy.
A group of 11 U.S. Senators recently took action advocating to revoke the Small Business Administration rules restricting such loans, but the relief may come too late for many businesses and hundreds of thousands of workers.
Cannabis deemed essential; Retail sales soar
At the onset of the pandemic, many states and local jurisdictions, including California, deemed medical cannabis dispensaries as essential, allowing them (and their suppliers) to remain open during the Stay-At-Home or Shelter-In-Place orders. Retail cannabis sales soared in March as consumers stocked up on essentials, including medicinal cannabis. Many dispensaries benefited from municipalities easing regulations on cannabis retail sale, allowing brick and mortar stores to offer delivery and curb-side pickup.
While these developments benefitted some businesses, most jurisdictions have only granted the “essential business” designation to medical cannabis companies, adversely impacting recreational sales. Further, strong retail sales in March are expected to be temporary and the long-term effects of the COVID-19 economic fallout put businesses across the cannabis supply-chain at risk.
CARES Act and Paycheck Protection Program
Now, cannabis businesses have been dealt another blow as they are excluded from the federal relief mechanisms set in place to relieve small businesses. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted March 27, provides $2.2 trillion in stimulus, including economic relief under the Paycheck Protection Program (PPP), EIDL Loan Advances and Small Business Debt Relief program.
These programs are administered by the Small Business Association (SBA). To incentivize small businesses to keep their workers on payroll, the PPP provides for a partial (and in some cases fully) forgivable paycheck protection loan under Section 7(a) of the Small Business Act.
Cannabis businesses excluded from SBA funded services (including PPP loans)
The legal cannabis industry employs approximately 250,000 people in the United States. However, with the exception of businesses that produce or sell hemp and hemp-derived products, cannabis related businesses are not eligible for SBA funded services, including loans under the Paycheck Protection Program.
The SBA does not provide financial assistance to businesses that are illegal under federal law and does not recognize state legal cannabis businesses. As cannabis is currently a Schedule I substance, the SBA’s current policy excludes from SBA-backed financing “small businesses with direct or indirect products or services that aid the use, growth, enhancement or other development of cannabis.”
The PPP Borrower Application Form requires applicants to attest that they are eligible to receive a loan under the rules issued by the SBA and that they are not engaged in any activity that is illegal under federal law. False statements made to obtain an SBA loan are punishable by imprisonment of not more than 5 years and/or a fine of up to $250,000, and if submitted to a federally insured institution, by imprisonment of not more than 30 years and/or fine of not more than $1 million.
Local and state relief efforts
Cannabis businesses may benefit from local and state relief efforts, such as state-level unemployment benefits and state run financial assistance programs. Additionally, the Family First Coronavirus Response Act (HR 6201) included $1 billion in funding for state-administered unemployment insurance programs, which may provide benefits to cannabis workers in states that deem cannabis businesses eligible.
Cannabis industry advocates lobby for relief on Capitol Hill
On March 20, a coalition of cannabis industry organizations, including the National Cannabis Industry Association and the Minority Cannabis Business Association, wrote to Congress pleading for access to federal coronavirus business relief. The letter noted that other federal COVID-19 legislation applied to the cannabis industry, such as the Families First Coronavirus Response Act, which requires businesses (including cannabis businesses) with fewer than 500 employees to comply with paid sick leave coverage.
“The ineligibility of cannabis businesses for disaster assistance loans is especially inequitable given that these same businesses are required to comply with other coronavirus-related measures, such as paid sick leave coverage,” the organizations wrote. “We are not seeking special treatment for state-legal cannabis businesses. We only seek to have them treated on an equal level as all other job-generating, tax-paying companies in this country.”
Coalition of U.S. Senators push for SBA relief
The following week, on March 26, a group of 11 U.S. Senators, led by Sen. Jacky Rosen (D-NV), urged the Senate Committee on Appropriations to include language in its Fiscal Year (FY) 2021 Financial Services and General Government and Related Agencies Appropriations Bill prohibiting the SBA from denying loan applications to cannabis small businesses in states that have legalized cannabis use. In its letter to the committee, the Senators, which included Bernie Sanders (I-VT), Cory Booker (D-NJ) and Kamala Harris (D-CA), emphasized that “[o]ver the last decade, there has been a clear shift in public opinion toward supporting the legalization of cannabis in the United States.”
The letter stated that SBA loans would be especially helpful to cannabis small businesses because they would fill gaps left by the private sector, given that “most banks are reluctant to serve cannabis businesses due to conflicts with federal law.”
Additional legislative measures
Other pending legislation would open access to SBA loans for cannabis businesses, including HR 2540, the Ensuring Safe Capital Access for All Small Business Act of 2019. Introduced last year by Rep. Nydia Velazquez (D-NY), who chairs the House Small Business Committee, the bill would remove cannabis from the Controlled Substances Act and prohibit the SBA from denying services to cannabis related businesses.
Urgency among industry leaders
Many expect that the cannabis industry will likely see enhanced future growth due to legalization being accelerated as a means to gain job growth and tax revenue. States collected an estimated $1.9 billion in tax revenue from legal cannabis sales in 2019 and state legal cannabis sales are expected to increase from $12 billion in 2019 to $30 billion in 2023. However, many businesses need immediate assistance and will be unable to wait for the potential legislative reforms discussed above.
Recognizing this, industry advocates are urgently calling on Congress to provide federal relief for cannabis businesses. “In this time of crisis and unprecedented federal support for the economy, Congress should not allow all of the small and midsize cannabis businesses to be excluded by the SBA,” said Justin Strekal, political director of the National Organization for the Reform of Marijuana Laws (NORML). “Be it in the appropriations package or the next round of stimulus, this is a common sense solution [that will] will help protect jobs in 33 states and provide much needed support to Main Street small businesses.”
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