Tag Archives: cultivation

Some CBD Companies Are Getting Millions in Federal Aid

By Aaron G. Biros
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As we’ve covered previously, the coronavirus pandemic has impacted the cannabis industry in the United States in a number of ways. Many states with legal medical and recreational cannabis markets have deemed those cannabis businesses essential, allowing them to remain open during statewide stay-at-home orders. Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to help small businesses through the economic downturn, directing trillions of dollars to the Small Business Administration (SBA) to administer emergency loans, paycheck protection programs and other financial assistance to small businesses affected by the coronavirus pandemic.

CV Sciences received $2.9 million in federal aid from the SBA

However, pretty much all state-legal medical and recreational cannabis businesses are ineligible to receive money from the SBA because cannabis is designated as a Schedule 1 controlled substance. While Rep. Earl Blumenauer (D-OR) and Rep. Ed Perlmutter (D-CO) introduced legislation recently that would allow cannabis businesses to become eligible for federal assistance, it is unclear if that bill will become law. Furthermore, even if it does pass, cannabis businesses will likely receive little or no help at all, as a vast majority of the funds administered by the SBA have already been spoken for.

Enter the hemp and CBD products market. Thanks to the 2018 Farm Bill, which removed cannabis containing less than 0.3% THC from the list of controlled substances, hemp and CBD companies are not exempt from the SBA’s relief efforts.

According to VICE News, The Trump Administration has handed out millions of dollars to companies that sell CBD products. When VICE News looked into some SEC filings, they found more than $4 million in federal loans that have been granted to CBD products companies.

They found three CBD companies that scored big with federal assistance:

Despite state-legal medical and recreational cannabis businesses being left to fend for themselves, these large online CBD products retailers have received more than $4 million in federal aid money.

Emergency Cannabis Small Business Health and Safety Act – A Legislative Update

By Steve Levine, Megan Herr, Meghan Brennan
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On Thursday April 23, 2020, Representatives Earl Blumenauer (D-OR) and Ed Perlmutter (D-CO) introduced the “Emergency Cannabis Small Business Health and Safety Act” in the House. Blumenauer and Perlmutter have been influential in protecting state-legal cannabis businesses from federal interference, most recently under the 2020 federal appropriations rider.

If passed, the Act would allow state-legal medical and recreational cannabis businesses to take advantage of the multi-trillion dollar stimulus packages designed to help small businesses harmed by COVID-19.

As we previously discussed, cannabis businesses harmed by COVID-19 remain ineligible to receive federal financial assistance due to their engagement in “federally illegal” activities. Consequently, cannabis businesses cannot receive assistance from the Small Business Administration (SBA) thereby making them ineligible to receive Paycheck Protection Program (PPP) loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), traditional 7(a) loans, 504 loans, and microloans.

To provide the industry with much needed economic relief, the legislation states that cannabis businesses would no longer be prohibited from (i) participating in the PPP, (ii) receiving EIDL loans, or (iii) receiving emergency EIDL grants purely on the basis that the business is a “cannabis-related legitimate business”1 or “service provider.”2

Additionally, the Act clarifies that the SBA and its officers, directors and employees would “not be held liable pursuant to any Federal law or regulation solely for providing a loan or a loan guarantee to a cannabis-related legitimate business or a service provider.”

Even though states have varied in their approach to continue medical and retail cannabis operations amid the coronavirus outbreak, a majority of states that allow some form of sale and consumption of cannabis have designated the cannabis industry as “essential” and open for operation.3 Some states have gone as far as allowing home delivery, curbside pick-up, and telemedicine consultations.

Nonetheless, despite the cannabis industry’s designation as “essential,” cannabis businesses (including those who service the cannabis industry) will continue to be precluded from receiving federal financial assistance until the Emergency Cannabis Small Business Health and Safety Act, or similar legislation, is passed. It is important to note that, even if passed, the Emergency Cannabis Small Business Health and Safety Act would likely provide little relief, as the majority of the funds to be administered by the SBA have already been accounted for.

What does this mean to you?

Although the COVID-19 pandemic has highlighted the need for the heavily-taxed and financially burdened cannabis industry to receive assistance under the stimulus packages, the Act, even if passed by Congress, faces an uphill battle in the Republican-held Senate.


References

  1.  The term “cannabis-related legitimate business” means a manufacturer, producer, or any person that – (A) engages in any activity described in subparagraph (B) pursuant to a law established by a State or a political subdivision of a State, as determined by such State or political subdivision; and (B) participates in any business or organized activity that involves handling cannabis or cannabis products, including cultivating, producing, manufacturing, selling, transporting, displaying, dispensing, distributing, or purchasing cannabis or cannabis products.”
  2. The term “service provider” (A) means a business, organization, or other person that – (i) sells goods or services to a cannabis-related legitimate business; or (ii) provides any business services, including the sale or lease of real or any other property, legal or other licensed services, or any other ancillary service, relating to cannabis; and (B) does not include a business, organization, or other person that participates in any business or organized activity that involves handling cannabis or cannabis products, including cultivating, producing, manufacturing, selling, transporting, displaying, dispensing, distributing, or purchasing cannabis or cannabis products.”
  3. State-by-State COVID-19 Announcements Impacting Marijuana Businesses.

Essential Cannabis Businesses Must Protect Employees and Customers During COVID-19 With Sanitation and Social Distancing Practices

By David Laks
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Unlike their retail neighbors who have been forced to move inventory online to survive, many cannabis businesses are considered essential and remain open during the current pandemic. With that, though, comes a tremendous responsibility to maintain optimal protocol for safe operations and customer shopping.

Whether you run a retail or production operation, allow only essential vendors (i.e. delivery, service companies) into the facility and have non-essential staff telecommute, when possible. Some businesses may want to consider splitting shifts for the management team as well.

Each state and local municipality will have their own rules when it comes to protocols for open retail establishments. Where those are more stringent than the following recommendations, adhere to the more stringent rule.

Cannabis Production Facility Best Practices

While not being face-to-face with cannabis customers on a daily basis, production facilities are the first and possibly only ones to handle the raw product the customer will eventually consume. For this reason, it’s important to conduct a refresh training session on sanitation procedures and new COVID-19 protocol for all production employees. Consider the following critical procedures for cannabis production facilities:

  • Review current production sanitation procedures and adjust accordingly, focusing on high touch points and potentially contaminated surfaces. Include office items such as keyboard, phones, and kitchen areas.
  • Review the business’ call-in sick policy and make sure employees know they can – and should – do so if they’re under the weather.
  • Sanitize high touch points every 30 minutes or less.
  • Instruct employees to wash hands with soap and water for 20 seconds after blowing their nose, coughing, sneezing, going to the bathroom, before eating and when touching any communal surface, including door handles and surfaces. Wear personal protective equipment (PPE) at all times while working with raw product, including gloves and masks.

    control the room environment
    PPE can reduce the risks of spreading disease
  • If an employee coughs or sneezes in a production area, instruct them to do so into the elbow of their outer garment, and immediately change following proper donning techniques. Instruct them to avoid touching their face.

Cannabis Retail Facility Best Practices

Retail cannabis establishments must realize first and foremost that those with compromised immune systems may be frequenting their store to purchase medical cannabis. Consider, evaluate and appropriately publicize protocol relative to employee interactions with customers, including:

  • Enable mobile or order-ahead features along with curbside pickup and contact-less delivery, when possible. Where this isn’t an option, limit the number of customers in the store at a time.
  • Consider moving to appointment-only operations, or restricted hours for those over 65.
  • Reduce store visits by recommending patients order their prescription for the maximum allowable 60 days.
  • Designate an employee to champion personal sanitation and social distancing. Create an entry sanitation station and require all customers to use it upon entry. Maintain social distance of 6-ft. minimum between customers. Place markings on the floor to designate this.
  • Limit sales to only sealed products.
  • Sanitize high touch points twice an hour, including ID check booths, display cases, phones, keyboards, etc. and provide adequate PPE for all, including gloves, masks, etc.
  • Install separation barriers, like thick plastic or plexiglass at each cashier station.

The requirements of keeping an essential business open will vary by location and will likely change as the COVID-19 pandemic evolves. Regularly check for changes to the rules of your local jurisdiction and adapt accordingly.

HACCP

HACCP for Cannabis: A Guide for Developing a Plan

By Radojka Barycki
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HACCP

Hazard Analysis and Critical Control Points (HACCP) is a systematic approach that evaluates hazards that may potentially be present in food products that can harm the consumer. The process used to manufacture the product is evaluated from raw material procurement, receiving and handling, to manufacturing, distribution and consumption of the finished product1. The documented process is what is known as HACCP plan. Although HACCP was designed to evaluate hazards in foods, it can be used to assess or evaluate hazards that may potentially be present in cannabis consumable products (edibles and vaping) that can cause harm to the consumer.

HACCP plan development requires a systematic approach that covers 5 preliminary steps and 7 principles. A systematic approach means that each step must be followed as outlined. Skipping a step will result in a HACCP plan that most likely will be ineffective to control potential hazards in the product.

The 5 preliminary steps are:

  1. Establish a HACCP team
  2. Describe the product
  3. Establish the intended use of the product
  4. Develop a flow diagram
  5. Verify the flow diagram

The 7 Principles are:HACCP

  1. Conduct a hazard analysis
  2. Identify the critical control points (CCPs)
  3. Establish critical limits (CL)
  4. Establish monitoring procedures
  5. Establish corrective actions
  6. Establish verification procedures
  7. Establish records and record keeping procedures1,2

It is important to mention that HACCP plans are supported by programs and procedures that establish the minimum operational and sanitary conditions to manufacture safe products. These programs and procedures are known as pre-requisite programs (PRP) or preventative controls1,2.

Figure 1. Flow Diagram

A multidisciplinary team must be established in order to ensure that all inputs of the product manufacturing process are considered during the hazards analysis discussions. The description of the product and its intended use provides detail information on ingredients, primary packaging material, methods of distribution, chemical characteristics, labeling and if any consumer might be vulnerable to the consumption of the product. A verified flow diagram is an accurate representation of the different steps followed during the product manufacturing process and will be used to conduct a hazard analysis. An inaccurate flow diagram will set the stage for an inadequate HACCP plan. Therefore, it is important that the HACCP team members verify the flow diagram. Figure 1 is a flow diagram for a fictional infused apple juice manufacturing plan that I will be using as an example.

The hazard analysis is the backbone of the HACCP plan. There are two elements that must be considered when conducting the hazard analysis:

  • Identification of the hazard associated with the ingredient(s) and/or the product manufacturing steps. These hazards have been categorized as: Biological, chemical (including radiological) and physical. Biological, chemical and physical hazards should be considered for each ingredient, primary packaging and process step. Also, it is important that the team is specific as to what hazard they are referring to. I often find that biological hazards are identified as “pathogens” for example. The team has to be specific on which pathogen is of concern. For example, if you are processing apple juice, the pathogens of concern are pathogenic coli and Salmonella sp. However, if you are processing carrot juice, you need to add Clostridium botulinum as a biological hazard also. If the choice of method to eliminate the hazards is pasteurization for example, the processing temperature-time combinations will differ greatly when manufacturing the apple juice vs. the carrot juice as C. botulinum is an organism that can sporulate and, therefore, is harder to kill.
  • Characterization of the hazard. This implies determining the significance of the potential hazard based on the severity of the consequence if it is consumed and the likelihood of occurrence in the ingredient or process step. Only steps in the process that has significant hazards should be considered further.
Table 1. Ingredient Hazard Analysis

In my professional experience, the hazard analysis is one of the most difficult steps to achieve because it requires the expertise of the multidisciplinary team and a lot of discussion to get to the conclusion of which hazard is significant. I find that a lot of teams get overwhelmed during this process because they consider that everything in the process may represent a hazard. So, when I am working with clients or providing training, I remind everyone that, in the bigger scheme of things, we can get stricken by a lighting in the middle of a thunderstorm. However, what will increase our chances would be whether we are close or not to a body of water for example. If I am swimming in the middle of a lake, I increase my chances to get stricken by the lighting. In comparison, if I am just sitting in my living room drinking a cup of coffee during the thunderstorm, the likelihood of being stricken by a lighting is a lot less. The same rationale should be applied when conducting the hazard analysis for manufactured products. You may have a hazard that will cause illness or death (high on the severity chart) but you also may have a program that mitigates the likelihood of introducing or having the hazard. The program will reduce the significance of the hazard to a level that may not need a critical control point to minimize or eliminate it.

Table 2. Process Hazard Analysis (1)

Clear as mud, right? So, how would this look like on the infused apple juice example? Table 1 shows the hazard analysis for the ingredients. Tables 2 and 3 show the hazard analysis for the part of the process. In addition, I have identified the CCPs: Patulin testing and pasteurization. There is a tool called the CCP decision tree that is often used to determine the CCPs in the process.

Once we have the CCPs, we need to establish the critical limits to ensure that the hazard is controlled. These limits must be validated. In the case of Patulin, the FDA has done several studies and has established 50 ppm as the maximum limit. In the case of pasteurization, a validation study can be conducted in the juice by a 3rd party laboratory. These studies typically are called thermal death studies (TDS) and provide the temperature and time combination to achieve the reduction of the pathogen(s) of concern to an acceptable level that they do not cause harm. In juice, the regulatory requirement is a 5-log reduction. So, let’s say that the TDS conducted in the infused apple juice determined that 165°F for 5 seconds is the critical limit for pasteurization. Note that the 5 seconds will be provided by the flow of the product through the holding tube of the pasteurizer. This is measured based on flow in gallons per minute.

Table 3. Process Hazard Analysis (2)

Monitoring is essential to ensure that the critical limits are met. A monitoring plan that outlines what, how, when and who is responsible for the monitoring is required.

Ideally, the system should not fail. However, in a manufacturing environment, failures can happen. Therefore, it is important to pre-establish steps that will be taken to ensure that the product is not out of the control of the facility in the event of a deviation from the HACCP plan. These steps are called corrective actions and must be verified once they are completed. Corrective actions procedures must address the control of the product, investigation of the event, corrective actions taken so the deviation doesn’t reoccur and product disposition.

Table 4. HACCP Plan Summary

Verification activities ensure that the HACCP plan is being followed as written. Typically, verification is done by reviewing the records associated with the plan. These records include but are not limited to monitoring records, calibration records, corrective action records, and preventive maintenance records for equipment associated with the CCPs. Record review must be done within 7 working days of the record being produced.

Finally, establishing records and record keeping procedures is the last step on developing HACCP plans. Records must be kept in a dry and secure location.

Table 4 show the summary of the HACCP plan for the infused apple juice example.

For more information on how to develop a HACCP plan for your facility, read the resources below:

  1. HACCP Principles and Application Guidelines – The National Advisory Committee on Microbiological Criteria for Foods (NACMCF)
  2. ASTM D8250-19: Standard Practice for Applying a Hazard Analysis Critical Control Points (HACCP) Systems for Cannabis Consumable Products

How to Streamline Labeling from Seed to Sale in The Time of COVID-19

By Travis Wayne
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As if the cannabis industry doesn’t regularly go through enough rapid change, with COVID-19, cultivators, processors and dispensers of all sizes are trying to do more with less. Lower operational headcount and unpredictable production volume, along with a rapidly-changing supply chain – make eliminating manual steps a necessity. Labels include barcodes or various barcode symbologies to help companies manage inventory, identify products and ultimately ensure that the right products get to the right customers at the right time. By eliminating manual steps in your labeling environment, you can address these issues through automation, scalability, efficiency and accuracy: benefits that will last through the pandemic and position you well for the recovery period.

Automation

Automation of many kinds is being implemented from seed to sale including barcode label printing automation. Integration of labeling software and seed to sale traceability systems including METRC, BioTrack, Leaf Data and others enables streamlined barcode label data population and high-volume label printing to counteract the decreasing operational headcount and eliminate manual touchpoints.

Print automation can be defined as “a centralized technology that replaces the manual process of triggering a print job within a labeling environment.” Look for a labeling software solution that allows you to:

    • Completely automate your label printing process
    • Print to a greater number of printers
    • Initiate printing directly from any business system
Integrating your label printing system with your seed to sale traceability system can minimize errors, increase print speeds and maximize your ROI.

By integrating your label printing system with your seed to sale traceability system, you can expect to minimize errors, increase print speeds and maximize your ROI. Your business system already holds the variable data such as product names, license number, batch or lot codes, allergens, net quantity, cannabis facts, warning statements and more. By systematically sending this data to the right label template at the right time, labeling becomes an efficient and cost-effective process.

Scalability

One of the most important considerations for cannabis cultivators, processors and dispensers is to invest in solutions that can grow and pivot quickly as the business changes. Whether you are responding to temporary requirements or changes, or your business needs to scale up quickly to respond to a spike in demands as a result of COVID-19 or to prepare for coming out of this pandemic. Whatever your needs are, think about short-term and long-term goals for sustainable business solutions. Scalability includes:

Printing to a greater number of printers

As needs and automation requirements change, and your printer inventory has the possibility of increasing, make sure your labeling design software can be licensed per simultaneous user, with cost-effective, multi-user networking licenses. That way, you don’t run the risk of paying for more printers as you grow or going over budget with each additional printer.

Print documents and labels from the same application

If you use the same data for your documents (like order receipts, bills of materials or packing lists) and labels, moving document printing into your label design software makes sense logistically. An advanced label creation and integration software enables label and document printing standardization by allowing multiple database records to be on one file. That means when new documents or labels come into your database, your software can seamlessly integrate.

Efficiency and accuracy

In a time where responding to the changing market needs to happen very quickly, where costs are being scrutinized and when errors cannot happen – you need to set up your labeling environment to have high levels of accuracy and control. With increased accuracy you will reduce waste, eliminate returns due to mislabeled product, efficiently track product and gain more efficiencies that will save you money and time.

Cutting manual steps out of the process

Removing manual steps in your printing process is a sure-fire way to gain efficiency and accuracy in your labeling environment. Look for labeling software features that allow you to add variable data from a device to your labels automatically, which limits the human interaction with your labels and in turn helps minimize human errors. Other efficiencies include:

On-demand color labeling streamlines efficiency and accuracy across a wide variety of labeling needs.
  • Increased print speed within your labeling environment
  • Reduced label waste
  • Collection of data from several devices such as:
    • Scanners
    • Scales
    • Keyboards

On-demand color labeling

On-demand labeling is specifically helpful in the cannabis labeling world because of all the regulations you must comply with. Each state has its own regulations, which means each label throughout the cannabis supply chain must be compliant with whichever state they are located. With on-demand labeling, cannabis companies print labels as needed and make changes as they go without the risk of wasting obsolete pre-printed label stock. This is beneficial as pre-printed labels often have large minimum order quantities. On-demand labeling also helps companies maintain better control of their own branding and graphics.

With on-demand labeling, label information can be populated by using pre-approved label templates in order to save you time with the variations of cannabis labels. This gives you the ability to print the specific label you need without having to waste your pre-printed label stock, or spend time switching out your pre-printed label stock in your printer.

Cannabis cultivators, processors and dispensers are faced with many obstacles during these challenging times due to COVID-19 – ensuring workers are safe, keeping operations at 100% capacity with potentially fewer people, creating contingency plans that may be changing daily. In an environment that is changing very quickly, consider how labeling solutions can evolve. You may also need to lean more on your partners than you ever have in the past.

The Cannabis Quality Conference & Expo

The Cannabis Quality Conference & Expo (CQC) is an educational and networking event for cannabis safety and quality solutions. Serving the Midwest market with a unique focus on science, technology and compliance, the CQC enables attendees to engage in conversations that are critical for advancing careers and organizations alike. Visit with exhibitors to learn about cutting-edge solutions, explore three high-level educational tracks for learning valuable industry trends, and network with industry executives to find solutions to improve quality, efficiency and cost effectiveness in a quickly evolving cannabis marketplace.

The Brand Marketing Byte

Pioneer Intelligence Increases Transparency, Expands Data Set

By Cannabis Industry Journal Staff
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Editor’s Note: While CIJ and Pioneer Intelligence do not have any financial relationship to disclose, it is important to note that we feature Pioneer Intelligence’s data in The Brand Marketing Byte, a column that showcases highlights from Pioneer Intelligence’s Cannabis Brand Marketing Snapshots, featuring data-led case studies covering marketing and business development activities of U.S. licensed cannabis companies.


Pioneer Intelligence, a marketing analytics company, is known for their marketing performance benchmarks of consumer-facing cannabis brands in the United States. They use data to analyze business activity across three areas: social media, earned media and web-related activities.

Today, Pioneer Intelligence announced they released a list of their data partners on their website. The group of partners includes well-known companies like Ahrefs, Instagram, SEMRush, Meltwater and SimilarWeb.

Ben Walters, Founder of Pioneer Intelligence

At present, Pioneer takes in over 80,000 data points each week. The company’s team of marketers and data scientists share findings through weekly generated Performance Scorecard reports as well as Brand Marketing Snapshots. Pioneer Intelligence offers reports on more than 500 U.S. cannabis brands. Ben Walters, founder of Pioneer Intelligence, says their mission is “to help cannabis industry stakeholders better understand how marketing strategies & tactics resonate with audiences.”

According to Walters, their goal was to partner with best-in-class companies. “So, alongside the fact that these names are trusted by marketing professionals worldwide, our team of marketers and data scientists researched, tested and validated a sizable number of sources before eventually selecting this group of partners,” says Walters. “We feel we’re well positioned to support the industry with valuable, data-led insights.”

Along with the release of their partner organizations, Pioneer Intelligence also announced they have expanded the total input data set to 80,000 relevant data points per week. That’s up from 26,000 data points at the beginning of this year.

According to Walters, the company is actively growing their product offering and looking for new ways to engage with cannabis industry stakeholders. “The feedback received on the first version of our Brand Marketing Performance Scorecard has been super encouraging,” says Walters. “That said, as customers told us they’re looking for more actionable data, we’re building an expanded suite of reports that include, amongst other things, more granular metrics.”

Turning Over A New Leaf: Faces of Courage In A Pandemic

By Marguerite Arnold
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The cannabis industry is not immune from global setbacks. Discussions about how resistant the vertical is to this (next) setback have been widely disseminated, from mainstream news to the blogosphere.

Yes, the UN punted global reform down the pike another 9 months – affecting the international industry. And so far, the entire vertical has been left out of the relief bill in the United States (although there are lobbying efforts everywhere to correct the oversight on subsequent bills now almost inevitably in the legislative hopper).

However, there are signs that the industry is actually gaining credibility if not forging new victories during a time likely to go down as this century’s “Great Depression.”

Here is a look at some of the trends afoot that are already bearing fruit and bringing relief.

Cannabis Business Is Essential Business

Some important battles have been won in many states in the U.S. as well as several other countries (including but not limited to Canada). This starts with the designation of the industry as “essential,” at least on the medical side. The issue of delivery and cashless payments have been on the front burner just about everywhere. And this time, there are few if any objections with a national lobby to voice said concerns.

In Europe of course the conversation is also different depending on where you are, but there are still signs that things are clearly changing.

In the UK, authorities have made it easier for cannabis importing. In Germany, pharmacies are on the front line in a way unseen just about anywhere else.

And in Spain, with most patients reliant on cannabis clubs, the lockdown and subsequent hardship for the most vulnerable has led to widespread calls to make deliveries a possibility. Even if the clubs are not functioning as “lounges,” their operators might not get fined for opening their doors, much less “importing” product from the outskirts of town to a central distribution point.

Pivoting To Respond In Times Of Crisis

It is impossible to forget that the emergent industry has been on the forefront of the medical industry and certified production for a long time, even if that, at least up to this point, has received little respect.

Health Canada has asked testing labs to repurpose their activities for Covid-19 testing.

Canadian and American producers are also on the front lines of providing PPE (personal protective equipment) that can be multi-purposed. Masks, gowns and gloves have all been donated from multiple companies. Others are literally repurposing ethanol used for extraction to make hand sanitizer for vulnerable populations. More than a few, including in Europe, have directly been involved in helping to fundraise for foodbanks.

GMP Licensing and Other Developments Still Cooking

While some companies waiting for certification have been stymied because of a lack of foreign travel (EU-GMP requires German inspectors to travel to Canada for example), there are other indications that global companies are finding the way through anyway.

GMPNew deals are being inked all over the planet, including international provision deals from unlikely places. This is in part because new export and sales channels are being forged – literally out of desperation. See the story of Little Green Pharma and Astral Health, an Australian company now exporting to the UK (a first). Or the New Mexico company Ultra Health, which just started to export to Israel. Not to mention the source of Israel’s other international purchase of cannabis this month –  from Uganda of all places.

Down under, things are certainly developing in an interesting way during the crisis. Indeed, New Zealand decided to proceed with its own cannabis cultivation, with signs that more reform is on the agenda for later in the year.

Back in the Northern Hemisphere, North Macedonia, home of one of the most developed cannabis economies adjacent to Europe, is literally one amendment away from entering the European and global business with flower as well as extracts (which is on the table this month as the government begins to reconvene.)

In summary, while times are tough, everywhere, the entrepreneurs who have forged their way through laws of man to create reform, are also showing up to battle against this century’s so far most emergent threat.

Cannabis Businesses Remain Ineligible To Receive Federal Financial Assistance

By Steve Levine, Megan Herr
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In our previous post, we touched on the fact that state-legal medical and recreational cannabis businesses (including indirect cannabis businesses) could not receive federal financial assistance due to the continued Schedule I status of cannabis under the Controlled Substances Act (CSA). While state-legal medical and recreational cannabis businesses have been adversely affected due to government imposed shelter-in-place restrictions across the United States, they are unable to take advantage of the multi-trillion dollar stimulus packages that are designed to help small businesses because they are engaged in “federally illegal” activities. As described below, applicants applying for federal loans must certify, under penalty of perjury, that they are not engaged in “illegal” activity.

While it is our view that state-legal medical and recreational cannabis businesses should be entitled to assistance as they are hurting like every other business, we explain why such businesses cannot receive financial assistance under the Paycheck Protection Program and the SBA’s Economic Injury Disaster Loan Program due to the facts that these businesses do not comply with federal law.

CARES Act

As previously discussed, Section 1102 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act or the “Act”) directed $349 billion to the Small Business Administration (SBA) to administer to small businesses harmed by COVID-19. As a result, businesses can apply for Paycheck Protection Program (PPP) loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), traditional 7(a) loans, 504 loans, and microloans, and can also receive investment capital from the Small Business Investment Company program.

Paycheck Protection Program (PPP)

Generally, the following businesses are eligible to receive loans under the PPP:

  • Any business, 501(c)(3) nonprofit organization, 501(c)(19) veterans organization or Tribal business with not more than 500 employees whose principal place of residence is in the United States;
  • Any business that meets the SBA employee-based size standards for the industry in which it operates (if applicable);
  • Any business that is a “small business concern” as defined in Section 3 of the Small Business Act, 15 U.S.C. 632, and meets the SBA employee-based or revenue-based size standards corresponding to its primary industry; or
  • Any business that is a “small business concern” under the SBA’s “alternative size standard” as of March 27, 2020, which standard is met if the business has not more than:
    • (i) maximum tangible net worth of $15 million, and
    • (ii) an average net income of $5 million (after Federal income taxes, excluding any carry-over losses) for 2 full fiscal years before the date of application.

Importantly, to apply for PPP, an applicant must make a good faith certification that the applicant is eligible to receive a PPP loan. An applicant must certify, under penalty of perjury, that it “is not engaged in any activity that is illegal under federal, state or local law.” (Borrower Application Form, page 2).

Consequently, because state-legal marijuana businesses (including indirect marijuana businesses) are operating in violation of federal law, applicants cannot make such certification, they remain ineligible to participate in the PPP.

 Economic Injury Disaster Loans (EIDLs)

 The CARES Act also provided a slew of changes to the SBA’s pre-existing EIDL program, which provides small businesses with working capital loans of up to $2 million to assist to help overcome the temporary loss of revenue as the result of a declared disaster.

The Act set out new rules making it easier for small businesses harmed by COVID-19 to receive loans quickly and efficiently; the Act added $30 billion to the EIDL loan fund, with an additional $10 billion added for the EIDL Grants connected to the EIDL loans.

The CARES Act also expanded eligibility to include businesses with no more than 500 employees, any individual operating as a sole proprietor or an independent contractor, and tribal businesses, cooperatives and ESOPs with no more than 500 employees. Small business concerns and small agricultural cooperatives who meet the SBA’s applicable size standards are also eligible, as well as most nonprofits.

However, to receive an EIDL loan, applicants must make a good faith certification that the applicant is eligible to receive an EIDL. An applicant must certify, under penalty of perjury, that it “is not engaged in any illegal activity (as defined by Federal guidelines).” (COVID-19 Economic Injury Disaster Loan Application).

The SBA has clarified that the limitation on applicants “engaged in any illegal activity” (13 CFR § 120.110 (h)) refers to all applicants engaged in “illegal activity under federal, state, or local law.”

In a Statement of Position issued on April 1, 2019 (the SOP), the SBA clarified that “illegal activity” includes “[a]pplicants that make, sell, service, or distribute products or services used in connection with illegal activity, unless such use can be shown to be completely outside of the Applicant’s intended market.” (SOP 50 10 5(K))

The SOP indicated that both (i) Direct Marijuana Businesses1 and (ii) Indirect Marijuana Businesses2 cannot receive SBA assistance due to the limitation on applicants “engaged in any illegal activity.”

It is the SBA’s position that, “because federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity.”

Consequently, because state-legal cannabis businesses (including indirect marijuana businesses) are operating in violation of federal law, applicants cannot certify that they are “not engaged in any illegal activity,” they are not eligible to receive EIDLs.


  1.  “Direct Marijuana Business” mean “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 recreational use and medical use even if the business is legal under local or state law where the applicant business is or will be located.”
  2. “Indirect Marijuana Business” means “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 aid in the use, growth, enhancement or other development of marijuana. Examples of Indirect Marijuana Businesses include businesses that provide testing services, or sell or install grow lights, hydroponic or other specialized equipment, to one or more Direct Marijuana Businesses; and businesses that advise or counsel Direct Marijuana Businesses on the specific legal, financial/ accounting, policy, regulatory or other issues associated with establishing, promoting, or operating a Direct Marijuana Business. However … [the] SBA does not consider a plumber who fixes a sink for a Direct Marijuana Business or a tech support company that repairs a laptop for such a business to be aiding in the use, growth, enhancement or other development of marijuana. Indirect Marijuana Businesses also include businesses that sell smoking devices, pipes, bongs, inhalants, or other products if the products are primarily intended or designed for marijuana use or if the business markets the products for such use.”

Buyer Beware For Distressed Cannabis Assets

By Joanne Molinaro, Geoffrey S. Goodman, Ronald Eppen
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The legalized cannabis industry remains a budding market in the United States. As the legislative dominoes started to cascade from state-to-state across the country, entrants of all categories—operators, investors, lenders, and retailers—were willing to stand in line for their tickets.  However, signs of fatigue, caused largely by the continuing murkiness of regulatory guidance and investors’ waning appetite for reading the legislative crystal ball, were already surfacing towards the end of 2018 and continued its slide downward into 2019. From March 2019, market capitalization for the 33 biggest cannabis stocks was down 45% by the end of 2019, falling from $54 billion to $30 billion and projected revenues dropped a whopping 17% as well.

Has COVID Made Things Worse?

Against this backdrop, COVID-19 arrived on the scene. Surprisingly (or perhaps not), cannabis seemed to be somewhat insulated from unprecedented disruptions to supply chains and artificial nose dives in demand. Many operators noted a sharp uptick in sales as states implemented shelter-in-place orders. Ironically, the supply chain hurdles created by the lack of federal legalization rendered operators—even multistate operators (MSOs)—uniquely equipped to handle the supply chain woes that others were struggling to contain. Meanwhile, as more and more states slapped the essential label onto both medical and adult use cannabis, operators were permitted to run business as usual (under the circumstances) and legalized cannabis started to look a little more “normal” in the most abnormal of times.

Thus, for a moment, cannabis looked like it might be a counter indicator (or recession-resilient)—while others were going down, cannabis was going up. But, after this brief surge, sales settled down and states began reporting decreases from this time last year and the outlook for the cannabis industry remains unclear.

Is This An Opportunity?

Declining demand, coupled with the issues described above, spells cash-flow problems for cannabis companies – many of which are still relative “infants” compared to their consumer goods counterparts and thus may have yet to create a “rainy day fund.” However, liquidity issues can create opportunities for those who still have cash to inject. In the last year, 13 special-purpose acquisition companies (SPACs) have listed on exchanges with an eye towards “cheap cannabis assets.”Cheap cannabis assets (or distressed cannabis assets) can offer a lowered barrier to entry into what many still believe to be a bull market. However, investors should proceed with caution. While the assets themselves may bear bargain basement price tags as the world grapples with the current recession, the cost of entry is more onerous than many realize. It is thus critical for potential investors to do their pre-due diligence on the who, what, when, where and how of acquiring distressed cannabis assets.

Where Do Distressed Cannabis Companies Go?

Ordinarily, distressed companies requiring capital restructuring look towards the US Bankruptcy Code. Deploying the broad injunctive relief afforded by the automatic stay as both a sword and shield, ailing companies can focus on lining up debtor-in-possession financing while they prospect feasible long-term exit strategies (through a reorganization, asset sale, or some combination of the two). The other major advantage of a chapter 11 is, of course, the “free and clear” order—the veritable clean slate provided by a federal court to good faith purchasers of the distressed assets that allow buyers to proceed with very few strings attached.

These federal benefits are not available to adult use and medical cannabis companies (hemp companies can file for chapter 11). Indeed, some bankruptcy courts have shut the door on not just the operators themselves, but companies that have even tangential dealings with cannabis companies.  With federal legalization, that will likely change; however in the meantime, distressed cannabis companies must look to pseudo-bankruptcy proceedings that offer some of the benefits that a federal bankruptcy can.

Is A State Receivership A Good Restructuring Vehicle For Distressed Cannabis Companies?

The number one option for many distressed cannabis companies will be state receivership. Much like a chapter 11 bankruptcy, the receivership provides for a stay against actions against the company’s assets, i.e., the breathing space it needs to hatch a plan for rehabilitation or exit the game as painlessly as possible. The receiver will be empowered to run the business while ironing out its operational/cash issues or conduct an orderly sale of the assets, usually through an auction process, during which the secured lender will be afforded the right to credit bid. The costs associated with that sale may be charged to the sale proceeds. Thus, in many ways, the state receivership acts like a federal bankruptcy.

How Is A State Receivership Different From A Federal Bankruptcy?

There are two main differences that investors should be aware of between a federal bankruptcy and a state receivership.

As with anything else that’s up for sale, where there’s a will, there’s a way.First, the court appointed receiver (often handpicked by the company’s primary secured lender) will be calling most of the shots from an operational, transactional, and financial perspective. That receiver may not have the kind of operational know-how of running a cannabis company that a typical debtor-in-possession might, making any major transaction more challenging. Even if the receiver has some background in the cannabis industry, he or she will still have a steep learning curve when it comes to the company’s specific business.

Second, the laws vary from state to state on whether a receiver can sell assets free and clear of any and all liens, claims, and encumbrances without the consent or satisfaction of those claims. Accordingly, buyers of distressed cannabis assets will want to take a close look at potential successor liability risks on a state-by-state basis.

Can Anyone Buy Or Invest In Distressed Cannabis Assets?

While many industries offer pay to play options for investors and lenders, the cannabis industry may not be as welcoming. Many lenders eyeing potentially lucrative refinancing possibilities that include an “equity kicker” (e.g., warrants) should be aware that states and municipalities often require investors aiming to own or control a substantial portion of the company’s business to satisfy most, if not all, of the regulatory requirements for holding the various licenses for operating in the cannabis space. For those interested in MSOs, a deep dive into each applicable state or city’s licensing requirements will be necessary.  Similarly, many states have onerous disclosure requirements for owners or financial interest holders of cannabis companies. Failures to disclose can lead to license suspensions or even forfeitures.

These are just some of the hurdles potential investors and lenders may need to scale. But as with anything else that’s up for sale, where there’s a will, there’s a way.