Tag Archives: policy

NCIA Publishes Environmental Sustainability Recommendations

By Cannabis Industry Journal Staff
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Earlier this week, the National Cannabis Industry Association (NCIA) published its recommendations for improving environmental sustainability in the cannabis industry. The report, titled Environmental Sustainability in the Cannabis Industry: Impacts, Best Management Practices, and Policy Considerations, was developed by their Policy Council along with experts in the field of environmental sustainability.

The 58-page report is quite comprehensive and covers things like land use, soil health, water, energy, air quality, waste and the negative effects of an unregulated market. While the report goes into great detail on specific environmental policy considerations, like recycling, water usage, energy efficiency and more, it makes a handful of overarching policy recommendations that impact environmental sustainability on a much more macro level.

The report mentions developing a platform for sharing information in the national cannabis industry. The idea here is that information sharing on a national scale for things like energy use can be used as a communication tool for regulators as well as a tool for companies to collaborate and share ideas.

The second more overarching policy recommendation the NCIA makes in this report is “to incorporate environmental best practices and regulatory requirements into existing marijuana licensing and testing processes.” This would help streamline and unify regulations already in place and keeps sustainability in the discussion from the very start.

The last major policy recommendation they make is for incentive programs. They say that governments should incentivize cannabis businesses to operate more sustainably and “prioritize funds provided to businesses where barriers exist to entering the market, such as small- or minority-owned businesses.” The report adds that this could essentially kill two birds with one stone by promoting environmental sustainability and diversity at the same time.

Kaitlin Urso is the lead author of the report and executive project and engagement manager for the Colorado Department of Public Health and Environment. She says that these policy recommendations were designed to benefit everyone. “A successful, socially responsible cannabis industry will require best practices for environmental sustainability. This paper is a vital first step in that effort,” says Urso. “This is important, ongoing work that will benefit everyone. The NCIA’s paper on environmental sustainability is going to inform how we approach important questions related to the future of the cannabis industry.”

To read the report in its entirety, click here.

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How to Vote for Cannabis Research on November 3rd

By Dr. Jordan Zager
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It was 1996. I was four years old. California Proposition 215 passed and for the first time, legal medical cannabis became available. I don’t remember it honestly, but that moment triggered a reckoning of outdated and ineffective efforts to control cannabis, which continues on November 3rd.

The moment in 1996 created for me and my generation of millennials a new, decriminalized lens for which to view cannabis and its potential. In my lifetime, from first experimenting with cannabis after high school and then earning my PhD in plant biochemistry, advancing cannabis research, to starting an agtech company dedicated to the genetic improvement of cannabis, we continue this march toward legalization. But another march hasn’t started yet.

The cannabis we consume today is still largely the same (albeit more potent today) as the cannabis that was legalized in 1996. There’s been little advancement in our scientific understanding of the plant. This can and should change. I believe the future and legitimacy of the cannabis crop in the medical field and in farmers’ fields is on the ballot this November.

Five states have cannabis on the ballot for November 3rd

In 33 states, medical cannabis is currently legal and in eleven of those, including my home states of Nevada and Washington, legalized adult-use recreational cannabis is generating millions in tax revenue every month. But compared to every other commercial crop, cannabis is still decades behind.

We are seeing a glacial cadence with cannabis research. As voters in five more states consider this November whether to legalize cannabis, that same tipping point we reached in 1996 comes closer to being triggered for cannabis research.

Here’s what cannabis scientists, like me, face as we work to apply real scientific methods to the long-neglected crop: I published one of the most cited papers on cannabis research last year, titled, Gene Networks Underlying Cannabinoid and Terpenoid Accumulation in Cannabis. But, as per university policy, we were unable to touch the plant during any of our research. We could not study the physical cannabis plant, extracts or any other substantive physical properties from the plant on campus or as a representative of the university. Instead we studied cannabis DNA processed through a third-party. Funding for the research came from private donors who were required to be unassociated with the cannabis industry.

While we were conducting our heavily restricted, bootstrapped cannabis research, the university lab in the next building over was experimenting with less restrictions on mice using other drugs: cocaine, opioids and amphetamines. (Quick note, marijuana is listed as more dangerous than cocaine, which is a Schedule II drug.)

I get it. Due to the federal prohibition on cannabis as a heavily regulated Schedule I drug, universities cannot fund research without the risk of losing all of their federal funding. While the USDA does not support research and SBIR grants are all but impossible, one government agency does allow research, from cannabis grown only in Mississippi. It’s the Drug Enforcement Agency (DEA) and any research conducted using its crop is as ineffective as you’re imagining. Relevant research is likely impossible using the crop which dates back to a 1970’s strain with a potency that’s about 30 percent of today’s commercial cannabis offerings.

To change this anti-research climate, do what those in California did with Prop 215 in 1996. Vote.

Dr. Jordan Zager, author and CEO of Dewey Scientific

Vote for legalization of cannabis if you’re in those five states where legalization is on the ballot; that’s Arizona, New Jersey, Montana, South Dakota and Mississippi. The more states that align with cannabis legalization, the stronger the case becomes for the federal government to reschedule the drug from a Schedule I controlled substance. Currently cannabis is listed as a Schedule I alongside heroin. The DEA claims cannabis has no currently accepted medical use and a high potential for abuse. Both are not true, just listen to the scientists.

Those outside of the five states putting cannabis on the ballot can still play a role in creating a Congress that is more receptive to cannabis reform. This Congress is the oldest, one of the most conservative and least effective in our country’s history. Younger, more progressive representation will increase our odds of advancing cannabis research.

Cannabis holds far too much possibility for us to allow it to be an unstudied “ditch weed.” THC and CBD are just two of nearly 500 compounds found in cannabis which, when scientifically scrutinized will harvest – I believe – vast medicinal and commercial benefits and the tax windfalls that accompany both. But first you have to vote.

If cannabis and your representatives are not on the ballot, do something millennials have built somewhat of a reputation for failing to do; pick up a phone and call your current representative. Tell them cannabis deserves scientific attention and investment. There’s too much potential in the cannabis plant to wait any longer.

Why You Should Consider Parametric Insurance to Protect Your Outdoor Cannabis Crop

By Evan Stait
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In May 2019, there were 4,400 reports of tornadoes, hail and high winds across the U.S. That’s the highest number of similar weather incidents on record since 2011. This increasing number of weather incidents has a huge effect on the cannabis industry, which has turned more frequently to outdoor cultivation since legalization.

While outdoor cultivation can develop the flavor of the cannabis crop, much like wine, it also brings with it some unique challenges. Each component of the weather – wind, rain, temperature – plays a role in whether a crop succeeds or fails. While conditions one year may easily lead to a bumper crop, the conditions the following year may not be as favorable. And as the weather becomes more volatile due to climate change, growers are ever more at risk, especially when they aren’t insured.

Evan Stait, author and commercial account executive for HUB International

Unfortunately, traditional crop insurance isn’t available for outdoor cannabis cultivators, primarily because of a lack of data on yield performances – and the impact the weather has on yields. Insurance companies don’t create policies until they have the data to back the policy. But meanwhile, the growers are assuming all the risk.

Enter parametric insurance. Parametric insurance is a program that pays out after a certain parameter is met. In the case of cannabis growers, the parameters are weather-related. The policy is triggered when the weather varies from the average – if there is too much rain during a specific period of time, for example, or an occurrence of large hail. Because the policy is related to average weather, it has to be tailored to the specific growing region – which means the parameters for Colorado won’t be the same as a policy for Maine.

For cannabis crops, coverage can be created for the following parameters:

  • Rain (recorded in inches of rainfall over a period of time)
  • Wind (recorded in miles per hour)
  • Early freezing (using recorded temperatures)
  • Hail (measures intensity and size of the hail)
  • Drought (for non-irrigated plots)

Once a parameter has been set, the policy starts to pay out at the strike point, or the average measurement specified in the policy. Coverage continues to pay out until the exhaust point, or the entire limit of the coverage is paid out. It works well because it’s straightforward: The further away from the average, the more the likelihood of catastrophic loss.

Parametric insurance isn’t for everyone. It’s a program designed to fill gaps that exist within the traditional insurance system. Nor is it designed to stand alone. But it can protect outdoor cannabis cultivators from weather risks that are truly beyond their control, especially given the hardening property insurance market.

In addition, it works for two simple reasons:

  1. Simplicity: Recorded weather events leave no room for ambiguity or dispute. You don’t even need an adjuster to guide the claims process. The official weather data proves what happened.
  2. Correlation: There is a high degree of correlation between measurable weather events and potential damage to outdoor crops.

Parametric coverage is not widely available. Many insurance professionals may not even know of it. But with the property insurance market hardening and a growing need to protect you and your cannabis business from weather-related disaster, parametric coverage may be your best bet. Make sure you speak to a broker who knows about it.

Cannabis Industry Journal

Cannabis Property Coverage: Understanding Risk Management & Communication

By Bradley Rutt
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Cannabis Industry Journal

For cannabis companies, property coverage can cost as much as seven to 10 times what traditional manufacturing and retail outlets pay. That is, of course, because of the inherent hazards involved in manufacturing and selling cannabis, in a difficult insurance market.

For landlords and building owners, taking in a cannabis tenant can be tricky as well. Because of the higher theft and manufacturing risks, many underwriters are unwilling to offer coverage. And, failure by a landlord to disclose a cannabis tenant is likely to result in a denied claim. Keeping property coverage in check by implementing risk management best practices and working to expand coverage and reduce premium costs can propel a cannabis business even further.  

Moreover, some landlords and building owners will require businesses to maintain occurrence-based liability coverage, which is harder to secure when running a cannabis operation. An occurrence-based liability policy is one that covers the renter for an accident occurring during the policy period, regardless of when a claim is made.

Instead, some insurance companies will only cover cannabis business’ high risks with a claims-made policy, or one in which claims must be made during the policy period only. Landlords will often stipulate their requirement for an occurrence-based policy in their lease. That means that cannabis businesses with a claims-made policy could unknowingly be in violation of their lease.

These issues and others have allowed landlords to command premium rent from cannabis business owners who find obtaining the right property coverage difficult.

To calm the rising tide of rent and property coverage costs, cannabis business owners and operators can engage in the following risk management considerations.

 Risk Management Considerations for Facilities with a Cannabis Operation 

Carriers are more likely to provide a policy to cannabis businesses that are doing what they can to minimize their risk. Here are six ways cannabis businesses can reduce their costs, minimize exclusions and obtain broader property coverage.

  1. If you are a retailer, have a plan to prevent or respond in the event of a robbery.
  2. Install and know how to use vaults and safes properly.
  3. Install central station alarms, cameras and other safeguards. Have them tied to your phone for easy access.
  4. Depending on the nature of the operations, install and regularly test fire sprinklers on site to make sure they are in working order.
  5. Consider hiring a third party, properly-insured, armed guard to safeguard your storefront on a regular basis.
  6. Institute industry-known best practices for high-risk manufacturing processes, like oil extraction.

Insurance Considerations for Facilities with a Cannabis Operation 

Risk management is critical to controlling risk, and insurance considerations can help your cannabis business obtain broader coverage and reduce premium costs.

  1. Communicate with your insurance broker.If you’re a landlord and you want to rent to a cannabis tenant, have a conversation with your insurance carrier at least 30 days before the lease begins. Even if you do, there’s a good chance that your carrier will issue a notice of cancellation (NOC) because they don’t want to engage with cannabis risk. On the other hand, if you don’t disclose the new tenant risk, should a claim be filed, it will could be denied, and the non-disclosure could cost you your policy.
  2. Engage a broker/carrier that specializes in cannabis.In such a volatile market, it is important to work with a broker and carrier that specialize in cannabis. This will enable hidden exclusions to be removed and help you procure the best policy and pricing possible for your organization.
  3. Tell your insurance “story.”Let the carrier understand your business and its risks by telling them your “story.” Tell them what your business does well, including current risk management practices and how you’ve been able to reduce claims. This will go a long way toward potentially minimizing premium costs and exclusions and obtaining broader coverage.
  4. Get another set of eyes. Most carriers will require a lengthy application from cannabis businesses in which the carrier may require the business to comply with certain requirements like having an approved safe or vault room. Your business will be held to the requirements stipulated in the application should you sign and submit it. Ask your broker or a reliable attorney to review the contract for anything you may have missed. Some carriers will incorporate the submitted application into the policy. Any changes between policy inception and a claim could cause coverage issues.

The fast-growing nature of the cannabis industry has ushered in a new set of challenges for business owners and operators. Keeping property coverage in check by implementing risk management best practices and working to expand coverage and reduce premium costs can propel a cannabis business even further.

A Joint Problem: How Cannabis Testing Policies Affect Applicants’ Attraction Toward an Organization

By Prachi
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Employees with substance abuse issues could cause problems for their employers. Recent legalization of cannabis has prompted organization to re-evaluate their drug testing policies in anticipation of increased usage among employees and potential hires (Rotermann, 2020). Cannabis use has increased from 14.9% to 16.8% post-legalization in Canada. Policies that enable routine cannabis-testing of employees, though beneficial in some cases, might negatively affect the perceptions of individuals toward the organizations that hold these policies. Specifically, job applicants may perceive the administration of such policies as unfair. I investigated the influence of cannabis testing policy and its perceived fairness on job applicants’ perception of organizational attractiveness and their intention to apply to a job vacancy.

A recruitment notice was presented to potential participants, which included a link to the survey. After reading and signing the consent form, participants were randomly assigned one of the three drug testing conditions (severe, moderate, none). Severe drug testing policies include testing pre-employment, randomly during the employment period, and in response to suspicious behavior. Moderate drug testing policies include administering drug testing pre-employment and in cases of suspicion. None is the control (i.e., no testing policy in place). The corresponding vignette was presented, followed by the survey questionnaire (measures on organizational attractiveness, intention to apply, perceived fairness, and perceived stigma), demographic questions, and questions on cannabis usage.

Cannabis user’s perceived fairness of cannabis testing was higher within organizations with no compared to severe testing situations (Figure 1). However, for individuals who do not ingest cannabis, the perceived fairness was higher for organizations with severe compared to no cannabis testing policy. This suggests that cannabis users deem cannabis testing as unfair regardless of the type of policy. This supports previous research findings on recreational use of cannabis and job seekers’ perception of drug testing (Paronto et al., 2002). Based on Gilliland’s (1993) model of organizational justice and perceived fairness, there are 10 procedural rules categorized into three categories: formal characteristics of selection system, explanations offered during the selection process, and interpersonal treatments that help form the applicants’ perceived fairness. In the current study, the no-cannabis testing job advertisement was seen as valid (one of Gilliland’s procedural rules is selection information) and honest (one of Gilliland’s procedural rules is honesty) by the cannabis users; however, moderate and severe testing was not seen in the same light, which might explain why we see decreased perceived fairness for cannabis testing. Those two procedural rules violate reasonableness leading to decreased perception of organizational fairness among cannabis users for cannabis testing.

The current study also supported past research by confirming that the individuals who ingest cannabis demonstrated increased levels of organizational attractiveness and intention to apply to organizations that had none compared to severe cannabis testing policies. If the organization is testing for cannabis use pre-employment or randomly, in addition to post-accident/suspicious behavior (i.e., severe policy), cannabis users’ level of organization attractiveness and intention to apply is much lower. This could be due to the fact that cannabis has been legalized in Canada and 11 states in the US  (Leafly, 2020). Individuals might feel that severe testing is an invasion of their privacy given that they are not doing anything illegal. Furthermore, job applicants perceived drug-testing as harassment toward individuals and claimed it represents a repressive work environment. Given that, this feeling could prevent an applicant from applying or considering the available job.

Implications: This study has important implications for employers and organizations in general. Even though it is important to have cannabis testing policies in place, it is equally important to consider the impact of cannabis testing on the potential talent pool. Such perceptions of drug testing may lead talented applicants to self-select out of the job pool. This would lead to a decreased number of applicants for a job available to the employer. Therefore, knowing the attitudes and intentions of individuals who ingest cannabis toward moderate and severe testing policies will provide employers with solid research-based evidence from which to design programs and policies surrounding cannabis testing.

SAFE Banking Act Included in COVID-19 Legislation

By Aaron G. Biros
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UPDATE: Late in the evening on May 15, the House of Representatives passed the HEROES package, voting 208-199 (with 23 abstentions). The bill now now heads to the Senate where its fate is more uncertain. 


Earlier today, Speaker Nancy Pelosi debuted the latest piece of legislation to help Americans impacted by the coronavirus pandemic. The Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES Act) is a large bill containing emergency supplemental appropriations more than 1,800 pages long.

On page 1,066, those in the cannabis industry will find a very exciting addition: the Secure and Fair Enforcement (SAFE) Banking Act. For the uninitiated, the SAFE Banking Act would ensure access to financial services for cannabis-related businesses and service providers.

Currently, federally regulated financial institutions face penalties for dealing with cannabis companies due to the Controlled Substances Act. The bill, if passed, would eliminate the possibility of any repercussions for doing business with cannabis companies.

The impact of this bill becoming law would be widespread and immediate for both the cannabis market and banks looking to invest in the cannabis industry. With banks given the green light to conduct business with the cannabis industry, there is no doubt that many financial institutions will rush to the opportunity. Cannabis businesses will benefit greatly, no longer having to deal with massive quantities of cash and gain access to things like loans, bank accounts and credit lines. Furthermore, cannabis companies will benefit from the rush of banks getting in the game, leading to a competitive and affordable banking market.

It is no secret that cannabis businesses have had a cash problem for decades now. Given the coronavirus pandemic, CDC guidelines dictate minimizing the handling of cash and encourage payment options like credit cards. Cannabis businesses dealing with large quantities of cash puts them, their employees, their customers and even regulators at risk.

Aaron Smith, executive director of NCIA

According to Aaron Smith, executive director of the National Cannabis Industry Association (NCIA), the cash problem is a serious, unnecessary health risk. “On behalf of the legal cannabis industry, we commend the congressional leadership for prioritizing public health and safety by including sensible cannabis banking policy in this legislation,” says Smith. “Our industry employs hundreds of thousands of Americans and has been deemed ‘essential’ in most states. It’s critically important that essential cannabis workers are not exposed to unnecessary health risks due to outdated federal banking regulations.”

In fact, it was the NCIA and a handful of other industry organizations that lobbied Congress last week to include language from the SAFE Banking Act in the HEROES Act, citing the known fact that cash can harbor coronavirus and other pathogens, along with the “personal proximity required by cash transactions as reasons for urgency in addition to the other safety and transparency concerns addressed by the legislation.”

The SAFE Banking Act was already approved by the House of Representatives. In September of 2019, the bill made a lot of progress through Congress, but stalled once it made it to the Senate Banking Committee.

The HEROES Act will be debated by the House of Representatives prior to a floor vote. If it passes the House, it moves to the Senate, which is about as far as it made it the last go around. However, because the banking reform is included in coronavirus relief legislation, there is a newborn sense of hope that the bill could be signed into law.

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.

Heightened EPL Exposure Hits Cannabis Businesses When Laying Off Employees

By Patrick Ryder
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Even though it’s valued at more than $15 billion, the burgeoning global cannabis industry has experienced recent layoffs. By the end of 2019, more than 600 cannabis employees got pink slips. Industry experts expect more of the same in 2020 as investigations, lawsuits and slumping valuations plague the industry.

Unfortunately for employers, layoffs are where the issues begin – not end. Especially for those without established policies and procedures. Without rules and regulations governing employment practices, business owners and operators are at considerable risk.

The 11 states where cannabis is legal for recreational use and the 33 where it’s medically legal tend to have more onerous employment practices liability (EPL) laws, where liability is often assumed by the employer for mistakes like poorly handled layoffs. This is further compounded by the fact that HR departments at fledgling cannabis companies tend to be small or non-existent and often ill prepared to deal with the legalities that come with termination.

Ensuring the right practices are in place prior to any layoffs is critical. Is your company facing employee terminations? Are you knowledgeable of how to handle it? Consider the following best practices:

  1. Document problematic employees. Create a folder for each employee and document the details when problematic situations escalate to the point they need to be addressed. Should employees of a protected class engage in an EEOC, class action or personal lawsuit after they’re terminated, you’ll need this documentation to support your actions.
  2. Create a formal termination procedure. Make sure the procedure includes well-thought-out details of your review process, including how employee performance is evaluated and what happens when those standards aren’t met. Spell out which behaviors are grounds for dismissal. When talking to the employee about a termination, have another employee or manager in the room to avoid claims of mishandling later on, typically their direct manager, someone from HR or your in-house attorney. Determine how the distribution of final compensation such as medical insurance or PTO will be handled so you’re prepared to answer those questions. These procedures should be spelled out in an employee handbook given to all at onboarding so there are no surprises.
  3. Retain a qualified EPL attorney. Create a relationship with a qualified EPL attorney (not your cousin who does divorce law) to help you set policies and procedures initially and to consult with when a unique or particularly difficult situation arises.
  4. Get the right EPL coverage. An EPL policy will defend a business from claims of breach of employment contraction, negligent evaluation, failure to employ or promote, wrongful termination, deprivation of career opportunity and mismanagement of employee benefits plans. Your EPL coverage will be determined by your location, clientele, employee profile and what you see as your biggest risks. When discussing the policy with your broker, weigh the following considerations to EPL coverage:
    • Reimbursement coverage versus pay on behalf. Should the policy pay your defense costs directly, or will you lay out the money and they’ll reimburse?
    • The definition of a claim and wrongful act will be different for each EPL policy.
    • EPL policy’s limit structure. Do you want defense limits to be outside or inside the coverage?

Having to lay off employees is never an easy choice for an employer. Make sure you and your business do everything right before and during the process so that the aftermath isn’t even more difficult, filled with lawsuits and liability claims.

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.

Cannabis Industry Insurance Outlook for 2020

By , T.J. Frost
1 Comment

Cannabis businesses have a lot to look forward to in 2020. After a bipartisan push through the House, the Safe Banking Act currently awaits passage in the Senate and then the president’s signature. If all goes well, the bill will allow the financial sector to finally service cannabis businesses – from banking to investments and insurance.

What else can cannabis business look forward to this year? Check out HUB’s Top 5 cannabis industry predictions for 2020.

  1. Hemp/CBD products go to market in droves. The passage of the Farm Bill and the ease of shipping hemp across state lines has led to a production boom for the crop. With little federal regulation around manufacturing and distribution, hemp/CBD products from edible oils to clothing and anti-inflammatory lotions are extremely profitable. Expect final federal Domestic Hemp Production Program rules on acceptable levels of THC in hemp/CBD products to be published sometime in 2020. These will be based on the current rule draft. There’s a strong push to move industrial hemp into the federal crop insurance program, which is also likely to happen in 2020.
  2. Product liability insurance is no longer a luxury. Thanks to significant vaporizer, battery and contamination claims currently in the courts, cannabis business can expect higher product liability premium rates in 2020. Expect rates to jump as much as 30 to 40%, depending on the resolution of these cases. For this reason, carriers will be more diligent about underwriting and may even ask for certification of insurance from vendors, and additional insureds on third-party policies. Exercising more caution and oversight when selecting vendors is a must for cannabis businesses operating in 2020 under this premise. It’s critical for all organizations to take a hard look at business practices before entering partnerships moving forward.
  3. Phase II industry growing pains surface. Now that the cannabis gold rush is dying down, businesses are poised to enter Phase II of their growth.Those who failed to institute proper hiring processes, including background checks, as well as protocols to promote security and prevent theft are currently facing challenges. Significant industry consolidation is making way for cannabis conglomerates to become multi-state operators. Directors and officers that made poor investments or acquisitions are facing scrutiny at the hands of the SEC or business investors. Without D&O insurance, or adequate limits, directors and officers could find their personal finances drained. Insisting on adequate D&O protection going forward is a best practice for cannabis executives.  
  4. Product and state regulatory testing expands. High-profile manufacturers and distributors of cannabis are standardizing their cannabis, hemp and CBD ingredient labeling. However, many others are taking advantage of the lack of rules currently surrounding cannabis production by falsifying labels and misrepresenting THC content in products. This has led to recent lawsuits and claims. As a result, states will begin to administer product testing and license regulations and enforce carrying time limits, track and trace and bag and tag rules. Get ready for fines, penalties and increased non-compliance liabilities in 2020.
  5. Increased availability of policies and limits. Both the cannabis industry and the number of insurance carriers entering the market continue to grow steadily. Businesses are enjoying higher liability limits as a result – to the tune of $15M on product liability and $60M on property. Coverage for outdoor cannabis crop is now a possibility, and workers’ compensation coverage can function as a blanket policy for businesses across state lines as well. Should the Safe Banking Act pass soon, stay tuned for additional insurance opportunities as well.

2020 Growth and Beyond

The 2020 presidential election will bring the federal legalization of cannabis to the forefront of public discourse. While the law may not change yet, passage of the Safe Banking Act and increased regulatory action at the state level will highlight the successes and failures of the 33 states and the District of Columbia that have legalized cannabis in some capacity. These will serve as a guiding light for federal legalization down the road.