Tag Archives: COVID

CARES Act – Stimulus Package Won’t Aid the Cannabis Industry

By Steve Levine, Megan Herr
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On Wednesday, March 25, the United States Senate approved an estimated $2-trillion stimulus package in response to the economic impact of the COVID-19 outbreak. The legislation, formally known as the “Coronavirus Aid, Relief, and Economic Security Act” (or the CARES Act), was approved by the Senate 96-0 following days of negotiations. One of the most highly anticipated provisions of the CARES Act, the “recovery rebates” for individuals, will provide a one-time cash payment up to $1,200 per qualifying individual ($2,400 in the case of eligible individuals filing a joint return) plus an additional $500 for qualifying children (§6428.2020(a)). The CARES Act, which remains subject to House approval, also prescribes an additional $500 billon in corporate aid, $100 billion to health-care providers, $150 billion to state and local governments and $349 billion in small business loans in an effort to provide continued employment and stabilize the economy. The legislation further provides billions of dollars in debt relief on existing loans.

CARES Act – Paycheck Protection Program 

Under the CARES Act, small businesses who participate in the “Paycheck Protection Program” can receive loans to cover payroll expenses, group health care benefits, employee salaries, interest on mortgage obligations, rent, and utilities (§1102(F)(i)). To qualify for these small business loans, businesses must employ 500 employees or less, including all full-time and part-time employees (§1102(D)). Eligible recipients must also submit the following as part of their loan application: (i) documentation verifying the number of full-time equivalent employees on payroll and applicable pay rates; (ii) documentation verifying payments on covered mortgage obligations, payments on covered lease obligations, and covered utility payments; and (iii) a certification that the documentation presented is true and the amounts requested will be used to retain employees and make necessary payments (§1106(e)). The CARES Act delegates authority to depository institutions, insured credit unions, institutions of the Farm Credit System and other lenders to provide loans under this program (§1109(b)). The Treasury Department will be tasked with establishing all interest rates, loan maturity dates, and all other necessary terms and conditions. Prior to issuing these loans, lenders will consider whether the business (i) was in operation as of February 15, 2020, (ii) had employees for whom the business paid salaries and payroll, or (iii) aid independent contractors as reported on a Form 1099-MISC (§1102(F)(ii)(II)).

What Does This Mean for Cannabis Businesses?

Due to the continued Schedule I status of cannabis (excluding hemp) under the Controlled Substances Act (CSA), cannabis businesses are not eligible to participate in the Paycheck Protection Program intended to keep “small businesses” afloat during the current economic crisis. Because federal law still prohibits banks from supporting marijuana businesses, financial institutions remain hesitant to service the industry, as anti-money laundering concerns and Bank Secrecy Act requirements (31 U.S.C. 5311 et seq.) are ever-present. As a result, even if cannabis businesses technically qualify to receive federal assistance under the Paycheck Protection Program, they will face an uphill battle in actually obtaining such loans.

Cannabis Businesses Are Also Precluded from “Disaster” Assistance

Moreover, the conflict between state and federal law continues to prevent cannabis business from receiving assistance from the U.S. Small Business Administration (SBA) under the Coronavirus Preparedness and Response Supplemental Appropriations Act (H.R. 6201). In light of the COVID-19 outbreak, the SBA revised its “Disaster Loan” process to provide low-interest “Disaster Loans” to eligible small businesses. To qualify for these loans, a state must submit documented business losses for at least five businesses per county. The problem, however, is that the SBA still refuses to assist state-legal cannabis businesses in equal need of small business loans. Specifically, in a 2018 Policy Notice, the SBA reaffirmed that cannabis businesses – and even some non “plant-touching” firms who service the cannabis industry – cannot receive aid in the form of federally backed loans, as “financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity.” The 2018 Policy Notice clarified that the following business are ineligible to receive SBA loans:

(a) “Direct Marijuana Business” — a business that grows, produces, processes, distributes, or sells marijuana or marijuana products, edibles, or derivatives, regardless of the amount of such activity. This applies to personal use and medical use even if the business is legal under local or state law where the applicant business is or will be located.

 (b) “Indirect Marijuana Business” — a business that derived any of its gross revenue for the previous year (or, if a start-up, projects to derive any of its gross revenue for the next year) from sales to Direct Marijuana Businesses of products or services that could reasonably be determined to support the use, growth, enhancement or other development of marijuana. Examples include businesses that provide testing services, or sell grow lights or hydroponic equipment, to one or more Direct Marijuana Businesses. In addition, businesses that sell smoking devices, pipes, bongs, inhalants, or other products that may be used in connection with marijuana are ineligible if the products are primarily intended or designed for such use or if the business markets the products for such use.

More recently, the SBA provided further clarification that cannabis businesses are not entitled to receive a cut of the federal dollars being appropriated for disaster relief because of the CSA’s continued prohibition of the sale and distribution of cannabis. Last week, the SBA reiterated that:

“With the exception of businesses that produce or sell hemp and hemp-derived products [federally legalized under the 2018 Farm Bill], marijuana related businesses are not eligible for SBA-funded services.” (@SBAPacificNW)

Consequently, because of the continued Schedule I status of cannabis under federal law, cannabis businesses will not be entitled to receive Disaster Loans from the SBA, regardless of whether they qualify as a struggling small business.

Resolving the Issue

While the federal government has been considering legislation, such as SAFE Banking and the STATES Act, to create a more rational federal cannabis policy, neither of these bills are likely to pass any time soon given the current COVID-19 pandemic.

At the end of the day, until Congress passes some form of federal cannabis legalization, these small businesses will remain plagued by the inability to receive financial assistance, as evinced by the Paycheck Protection Program.

COVID-19 and Cannabis: Market Implications – Protocols for Safety, Sanitation & Distancing (Virtual Event)

As the coronavirus pandemic has effectively shut down the Untied States, only some essential businesses remain open. Some states have deemed cannabis businesses like medical dispensaries as essential businesses that could stay open during state-wide shelter in place orders. Certain states, like Washington and Colorado, have published guidelines for dispensaries to operate while promoting social distancing. Those guidelines are including optional curbside service, but there are a number of rules that must be followed strictly. In this complimentary webinar, we’ll discuss the impacts of coronavirus on the cannabis industry and the implications for dispensaries continuing to operate.

Coronavirus Guidelines for the Cannabis Industry

By Aaron Green
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The World Health Organization (WHO) recently recognized COVID-19, the disease caused by the coronavirus SARS-CoV-2, a pandemic. What can cannabis businesses do to help reduce transmission?

At the time of this writing, community transmission of COVID-19 has been observed in every continent except Antarctica. While China and South Korea are showing signs of containment, with negative disease growth rates, the rest of world is experiencing positive – and in some cases exponential – disease growth rates. Many companies in the cannabis industry are asking: what can we do to slow the spread of the virus and get ahead of the outbreak?

By adopting sensible policies, businesses play a key role in reducing disease transmission. On March 13, 2020, The International Chamber of Commerce (ICC), in collaboration with the WHO and New England Complex Systems Institute (NECSI), released Coronavirus Guidelines for Business, a summary of actions businesses can take to reduce immediate risks to employees and long-term risks to costs and profitability. The guidelines have since been delivered to more than 45 million businesses worldwide.

There are four sections to the guidelines:

  • General Recommendations
  • Meetings, Travel and Visitors
  • Workplaces
  • Retail and Hospitality

Specific recommendations relevant to the cannabis industry include working remotely where possible, avoiding unnecessary travel and keeping clear records of each day’s contacts. Where possible, a pick-up and drop-off service, home delivery or drive by services are recommended.

Businesses should be developing, readying and implementing business continuity plans based on the ICC guidelines. At this point, a conservative position would be to assume that if an outbreak has not been reported locally it is only a matter of time before local cases are reported. Specific actions businesses should take will depend on location, nature of the workplace and potential disruptiveness to operations.

The ICC and NECSI Coronavirus Guidelines for Business can be found here.

endCoronavirus.org is built and maintained by NECSI and its collaborators and specializes in networks, agent-based modeling, multi-scale analysis and complexity as it relates to COVID-19.

The International Chamber of Commerce (ICC) is the institutional representative of more than 45 million companies in over 100 countries. ICC’s core mission is to make business work for everyone, every day, everywhere. Through a unique mix of advocacy, solutions and standard setting, they promote international trade, responsible business conduct and a global outreach to regulation, in addition to providing market-leading dispute resolution services. Their members include many of the world’s leading companies, SMEs, business associations and local chambers of commerce.

The New England Complex Systems Institute (NECSI) is an independent academic research and educational institution with students, postdoctoral fellows and faculty. In addition to the in-house research team, NECSI has co-faculty, students and affiliates from MIT, Harvard, Brandeis and other universities nationally and internationally.