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Attention Cannabis Businesses: Hope May Be on the Horizon for Federal COVID-19-Related Relief

APRIL 24, 2020

As Michelman & Robinson previously reported, the lending programs authorized under the CARES Act cannot be accessed by legal cannabis businesses and certain companies indirectly related to the industry. Consequently, players in the legal cannabis space have been beholden to the states for any and all assistance in the wake of the coronavirus pandemic, including the ability to remain open for business in some jurisdictions despite the issuance of stay-at-home and similar orders.

Notwithstanding the foregoing, good news at the federal level may be coming to the legal cannabis sector, with the introduction of the Emergency Cannabis Small Business Health and Safety Act (Cannabis Act). If passed and signed into law, this legislation—introduced by Representatives Earl Blumenauer (D-OR) and Ed Perlmutter (D-CO)—would allow legal cannabis businesses to obtain much-needed federal assistance, as explained by M&R.

Q. What is the main objective of the Cannabis Act?

A. Simply stated, the purpose of the Cannabis Act is to ensure that legal cannabis operations and their respective service providers can avail themselves of federal funding made available as a result of the COVID-19 crisis. Toward that end, the legislation states that such businesses can be eligible for assistance under (1) the Paycheck Protection Program, (2) Economic Injury Disaster Loans (EIDL), and (3) emergency grants under the CARES Act.

Q. Does the Cannabis Act provide for a new source of funding for legal cannabis-related businesses?

A. No, the legislation does not create a new loan or grant pool. Instead, the Cannabis Act, as written, mandates that legal cannabis businesses and their service providers be allowed to participate in current funding opportunities under the Small Business and CARES Acts (e.g., PPP, EIDL, etc.).

Q. How can the Cannabis Act allow for funding to legal cannabis businesses when the use or distribution of marijuana is still illegal under federal law?

A. The legislation gets around this sticking point two ways: (1) by exempting the SBA and its officers, directors, and employees from civil or criminal liability pursuant to applicable federal laws or regulations (e.g., the Controlled Substances Act and the like) in connection with any COVID-19-related loans or loan guarantees made to legitimate cannabis businesses or their service providers; and (2) by specifying that the mere participation in a legal cannabis operation will not, on its face, exclude such a business from federal assistance under the Small Business and CARES Acts.

Q. Why is it so important to provide federal assistance to legal cannabis businesses feeling the pain inflicted by the coronavirus outbreak?

A. The legal cannabis sector has created nearly a quarter million jobs, and many of those employees now depends on financial aid—in the form of loans and grants to their employers—in order to keep them working. And while some legal cannabis businesses have been deemed “essential”—and therefore remain open—in some states, these operators are nevertheless stung by the economic consequences of COVID-19. Social distancing requirements that limit in-store traffic, supply chain disruptions, and the overall economic downturn caused by the coronavirus all serve to severely impact their bottom lines.

In the meantime, it costs more to operate in the legal cannabis space. The entire industry is faced with higher federal taxation—this because legal cannabis businesses cannot take advantage of ordinary tax deductions available to other non-cannabis-related companies—yet they must still comply with pandemic-related governmental orders that all businesses now face, including the requirement to provide employees with paid sick leave. As such, all of the same operational standards apply to legal cannabis companies, though they (as of now) are not receiving any of the federal assistance afforded to more mainstream establishments. The Cannabis Act seeks to remedy this disparity, at least in part.

We are working diligently to keep our clients up to date on coronavirus-related developments. Nevertheless, these developments are changing daily and, in some cases even hourly, so it is important that you make sure you are dealing with the most current information. That being said, this alert is not offered, and should not be relied on, as legal advice. You should consult an attorney for guidance and counsel regarding any specific concern or situation.