Tag Archives: preparedness

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.

Strengthen Supply Chain Management with an Integrated ERP & CMS

By Daniel Erickson
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Success in the cannabis industry is driven by a company’s ability to adapt to an ever-changing market and meet the demands of the evolving consumer. Selecting the right business management solution to handle the complexities of the growing cycle as well as daily operations and compliance requirements necessitates diligent research. Ensuring that the selected technology solution has a centralized database in a secure platform designed to reinforce quality throughout company operations is essential in today’s competitive industry. An ERP solution with integrated CMS capabilities helps businesses strengthen supply chain management by seamlessly incorporating cannabis cultivation with day-to-day company operations to efficiently deliver seed to sale capabilities and meet marketplace demands.

What are ERP & CMS?

Enterprise resource planning (ERP) is a business system in which all data is centralized – including finances, human resources, quality, manufacturing, inventory, sales and reporting. A cultivation management system (CMS) is an extension of an ERP solution to manage cannabis greenhouse operations, including growing, inventory and labor needs. A CMS maintains a detailed level of tracking to account for continuous cannabis growth periods that require extensive monitoring and incur a multitude of expenses. In an integrated solution, both the ERP and CMS data are managed under the same secure database to provide a forward and backward audit trail of all business processes. This visibility encompasses the entire supply chain from the management of supplier relationships to distribution – including growing, cultivating, extracting, manufacturing and shipping.

How do ERP & CMS strengthen supply chain processes?

Tracks individual plants and growth stages – By tracking plant inventories at the individual plant level in real-time with a unique plant identifier, greenhouse operations are optimized – monitoring the entire lifecycle of the plant throughout the germination, seedling, vegetative and flowering stages. Audit trails maintain regulatory compliance, including information such as terpene profiles and THC and CBD potency. Monitoring genealogy, mother and cloning, crossbreeding, plant genetics and clone propagation are key to success in this industry. Strain tracking is equally important, including identifying which strains are performing best, producing the most yield and how they are received by the marketplace. Tracking of the entire supply chain includes the recording of plant health, harvesting techniques, production, growth, costs, lab testing and batch yields – without any gaps in information.

PlantTag
A plant tagged with a barcode and date for tracking

Optimizes growing conditions to increase yields – By automatically documenting and analyzing data, insights into plant and greenhouse activities create streamlined processes for an optimal cannabis cultivation environment. This includes the monitoring of all growing activities such as space, climate, light cycles, moisture content, nutrient applications, fertilizer and other resources, which all have an effect on plant growth and yields. Most importantly, labor costs are monitored, as it is the highest expense incurred by growers. In an industry for which many companies have limited budgets, enabling efficient greenhouse planning, automation and workflows reduces overhead costs.

Integrates with regulatory compliance systems – Compliance is a mandatory part of the cannabis business, and many companies haven’t expended the effort to ensure their processes are meeting regulations. This has placed their licensing and business at risk. An integration that automates the transfer of required reporting information from the ERP to state government approved software such as METRC, Biotrack THC and Leaf Data Systems to ensure regulatory compliance is imperative. This streamlined process assures that reporting is accurate, timely and meets changing requirements in this complex industry.

Facilitates safety and quality control – With an ERP solution tracking all aspects of growing, manufacturing, packaging, distribution and sales, safety and quality are effectively secured throughout the supply chain. Despite the lack of federal legality and regulatory guidelines, proactive cannabis producers can utilize an ERP’s automated processes and best practices to ensure safe and consistent products. By standardizing and documenting food safety procedures, manufacturers mitigate the risk of cannabis-specific concerns (such as aflatoxins, plant pesticide residue, pest contamination and inconsistent levels of THC/CBD potency) as well as dangers common to traditional food manufacturers (such as improper employee procedures and training) for those in the edibles marketplace. Food safety initiatives and quality control measures documented within the ERP strengthen the entire supply chain.

Maintains recipes and formulations – In manufacturing, to achieve product consistency in regards to taste, texture, appearance, potency and expected results, complex recipe and formula management is a necessity – including monitoring of THC and CBD percentages. The calculation of specific nutritional values to provide accurate labeling and product packaging provides necessary information for consumers. Cannabis businesses have to evolve with the consumer buying habits and marketplace saturation by getting creative with their product offerings. With integrated R&D functionality, the expansion of new and innovative edibles, beverages and forms of delivery, as well as new extractions, tinctures, concentrates and other derivatives, helps to meet consumer demands.

Handles inventory efficiently – Established inventory control measures such as tracking stock levels, expiration dates and product loss are effectively managed in an ERP solution across multiple warehouses and locations. Cannabis manufacturers are able to maintain raw material and product levels, reduce waste, facilitate rotation methods and avoid overproduction to control costs. With the use of plant tag IDs and serial and lot numbers with forward and backward traceability, barcode scanning automatically links product information to batch tickets, shipping documents and labels – providing the ability to locate goods quickly in the supply chain if necessary in the event of contamination or recall. The real-time and integrated information available helps mitigate the risk of unsafe products entering the marketplace.

Food processing and sanitation
By standardizing and documenting food safety procedures, manufacturers mitigate the risk of cannabis-specific concerns

Utilizes user-based software permissions – Access to data and ability to execute transactions throughout the growing stages, production and distribution are restricted to designated employees with proper authorization – ensuring security and accountability throughout the inventory chain.

Manages supplier approvals – Assurance of safety is enhanced with the maintenance of detailed supplier information lists with test results to meet in-house quality and product standards. Quality control testing ensures that critical control points are monitored and only approved materials and finished products are released – keeping undeclared substances, harmful chemicals and impure ingredients from infiltrating the supply chain. When standards are not met, the system alerts stakeholders and alternate vendors can be sought.

Delivers recall preparedness – As part of an edible company’s food safety plan, recall plans that include the practice of performing mock recalls ensures that cannabis businesses are implementing food safety procedures within their facilities. With seed to sale traceability in an ERP solution, mitigating the risk of inconsistent, unsafe or contaminated products is readily maintained. Integrated data from the CMS solution provides greater insight into contamination issues in the growth stages.

An ERP solution developed for the cannabis industry with supporting CMS functionality embodies the inventory and quality-driven system that growers, processors, manufacturers and distributors seek to strengthen supply chain management. Offering a centralized, secure database, seed to sale traceability, integration to compliance systems, in-application quality and inventory control, formula and recipe management functionality and the ability to conduct mock recalls, these robust business management solutions meet the needs of a demanding industry. With a variety of additional features designed to enhance processes in all aspects of your cannabis operation the solution provides a framework to deliver truly supportive supply chain management capabilities.