Government Funding Limitations and Options for Cannabis Businesses

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    The coronavirus pandemic has caused the Federal Government to release Small Business Administration loans to help aid business impacted by the pandemic. However, cannabis companies are not eligible for the $2.2 trillion dollar CARES Act, that includes the Paycheck Protection Program (PPP). Cannabis is still an illegal Schedule I drug at the Federal level, so they are exempt from SBA loans and the CARES Act.

    PPP was designed to help business with payroll, rent, mortgage interest, and utilities. Due to the forgiveness provision of this program it was highly sought after for the benefit of keeping employees on payroll. In California, recreational and medical cannabis dispensaries have been classified as essential business to remain open during the COVID-19 pandemic. However, cannabis companies are facing a large reduction of hours because of stay at home orders which is threatening the estimated 240,000 employees across the U.S Since cannabis business have not been able to get federal funding, many have had to lay off employees due to reduced profit and hours.

    California’s Small Business Finance Center has announced a Small Business Disaster Relief Loan Guarantee Program to help aid California’s small business during the COVID-19 pandemic. This program, like the PPP, is designed to help business cope with economic injury due to the pandemic. The IBank program is guaranteeing loans up to 7 years and 95% of the loan, but the loan interest rates and qualifications are based on the lender. The IBank program is willing to make a guarantee on a loan to a cannabis business, you must find a lender willing to make the loan. Due to the federal legality of cannabis, many businesses are unable to find banks to provide them loans.

    Cannabis industry association have called on lawmakers to remove restrictions on cannabis business being exempt from SBA loans. In a letter sent by the National Cannabis Industry Association, National Cannabis Roundtable, Minority Cannabis Business Association and Global Alliance for Cannabis Commerce, these groups urged that state-legal cannabis business should quality for assistance based on their members following strict regulation, and their creation of billion of dollars in tax revenue. The letter also stated that the restriction of cannabis business is inequitable because cannabis businesses are required to comply with other coronavirus mandated measures such as paid sick leave.

    Industry associations are calling for the passage of H.R. 3540 which would remove cannabis from the Controlled Substance Act and would prohibit SBA from denying services to cannabis business. This legislation was introduced last year by Rep. Nydia Velazquez, who chairs the House Small Business Committee.

    Experts believe that the coronavirus is triggering an acceleration of the industry shake-out. Smaller operations are having difficulty surviving the downturn which is resulting in the businesses folding without bankruptcy protections. Those companies that have proved to have operational expertise will be well-positioned to lead the industry in the next phase. The industry’s future has the possibility of continued consolidation while also emerging from the crisis with mainstream acceptance.

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