Despite Essential Status, Marijuana Businesses Still Face Economic Woes

Federal stimulus relief remains out of reach for marijuana industry

Marijuana businesses have been declared “essential” in some states, including Colorado. But the limited access to financial resources available to other businesses could mean the economic damage from efforts to contain the novel coronavirus will have a pronounced effect on the industry. For one, marijuana businesses can’t get small business loans Congress funded in the Coronavirus Aid, Relief and Economic Security Act.

In Colorado, Gov. Jared Polis declared marijuana businesses essential. Since he put in place the statewide stay-at-home order, medical dispensaries can remain open while recreational shops are limited to curbside pickup sales. Morgan Fox, media relations director for the National Cannabis Industry Association, said the scope of economic hardships for cannabis businesses has varied from state to state. Factors in play include whether businesses are allowed to use means of product delivery that reduce social contact, such as curbside pickup, and whether telemedicine is available for medical marijuana license renewals. 

“Despite the fact that there was an initial surge in sales, people are more confident that access is going to continue throughout the response period, so we’re seeing less panic buying and stockpiling,” Fox said. “Which is good for public safety overall, as well as good for maintaining supplies for patients. But just because there was a little bump in sales doesn’t necessarily mean that cannabis companies are in a better position.”

He added layoffs, restructuring and less investment by large companies because of the coronavirus’s economic fallout has a trickle-down effect on small businesses in the marijuana industry. 

Marijuana businesses can’t access small business loans from funding provided by the CARES Act. Existing law also can exclude “marijuana-related businesses” and some businesses that serve the industry from receiving Small Business Administration loans. 

The NCIA and other cannabis industry trade groups sent a letter on March 20 asking lawmakers to include state-legal cannabis businesses in federal relief. Fox said the organization plans to continue asking state and federal lawmakers for economic support for the industry, including through direct lobbying of Congress.

The ineligibility of cannabis businesses for disaster assistance loans is especially inequitable given that these same cannabis businesses are required to comply with other coronavirus-related measures, such as paid sick leave coverage,” states the letter. “We are not seeking special treatment for state-legal cannabis businesses. We only seek to have them treated on an equal level as all other job-generating, tax-paying companies in this country.”

Businesses that derive revenue from providing goods and services that could support the production or use of marijuana could be ineligible for SBA loans, and where the SBA would draw the line seems to depend on whom you ask. Rachel Gillette, who chairs Greenspoon Marder’s cannabis law practice, said, theoretically, the umbrella of indirect marijuana businesses could extend to include tangential types of operations, such as landlords and testing labs.

“[It] could be really any business that might somehow provide services to support the sale or growth or distribution of marijuana, which, to me, is a very big question mark.”

Others said that while defining how directly a business ties into the marijuana industry has some ambiguity to it, they didn’t seem to share the view that businesses purely tangential to the marijuana industry, such as landlords who rent space to businesses, would be likely to be excluded from small business loans. 

“There does remain some gray area about tangential companies, but I think it may come down to [what] percentage of their funds are from cannabis companies, and that’s an analysis the SBA would do upon application,” said Melissa Kuipers Blake, a shareholder at Brownstein Hyatt Farber Schreck. Kuipers Blake has a national lobbying practice and co-chairs Brownstein’s cannabis and industrial hemp industry group.

But marijuana industry employees may get relief from the CARES Act. State-legal marijuana businesses have to pay unemployment insurance for their employees, and Kuipers Blake said she believes states can use money from the federal stimulus package earmarked for unemployment to pay claims from marijuana industry employees who have been furloughed or laid off. 

“Notwithstanding the origination of the dollars coming from the federal government, when they enter state control, the state has authorization to provide relief to whatever businesses would qualify under their unemployment statutes,” she said. “I think there’s probably many, many lawyers looking at this right now to make sure that that’s the case, but there’s a general sense that unemployment insurance and those dollars would be available to legally operational cannabis companies.”

Fox said the stimulus checks for individuals provided by the CARES Act are available for people who work in the industry, so long as they pay taxes.

Before COVID-19 and the need for economic rescue was a glimmer on anyone’s radar, lawmakers debated the Secure And Fair Enforcement Banking Act Banking Act over several months, a proposed piece of legislation to ease restrictions on banking access for marijuana-related businesses. It would protect financial institutions from federal regulators for providing services to state-legal marijuana businesses. The bill has passed the full House but has since stalled in the Senate. 

There doesn’t seem to be consensus about whether the economic squeezes facing marijuana businesses will affect  political will for a law like the SAFE Banking Act. Steve Schain, a senior attorney at the Hoban Law Group who has expertise in banking in the cannabis industry, said he doesn’t see the coronavirus’s economic challenges for marijuana businesses moving the needle either way. He cautioned against perception that the proposed legislation would be a silver bullet for the marijuana industry’s legitimacy.

“It’s not going to hurt us, but I don’t think that the enhanced legitimacy of marijuana as an essential business is going to be a game-changer for the SAFE Banking Act’s passage, nor is the SAFE Banking Act the [savior] some would have you believe.”

—Julia Cardi

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