Cannabis-related firms again face hurdles in qualifying for financial relief under the newly enacted $1.9 trillion coronavirus stimulus package, but the door has opened wider for hard-hit companies, especially small and economically disadvantaged businesses.

The American Rescue Plan Act of 2021 (ARPA) includes three programs worth exploring, marijuana industry experts said.

Two offer billions of dollars in loans and grants, while another provides tax credits:

  • State Small Business Credit Initiative: More than $10 billion is being funneled to states to support small businesses, economically disadvantaged businesses and micro-businesses. Some experts believe state rather than federal rules should apply, potentially opening up funds for marijuana businesses operating in state-legal markets.
  • Employee Retention Credit: Requirements for these payroll tax credits have been relaxed some, and credits now could be in play for cannabis-related firms that have experienced a year-to-year drop in receipts of 20% or more (the previous standard was 50%).

  • Payroll protection loans and grants: The same strict requirements persist from the two previous economic stimulus rounds, but experts note that banks, which issue the loans and grants, ultimately determine whether a business qualifies.

Overall, though, it’s tough for cannabis-related businesses to tap the funds, especially those that are plant-touching.

“Once again, the cannabis industry has (largely) been left out of coronavirus relief, and likely that will only change once marijuana is legal federally,” said Josh Kappel, a founding partner of Denver-based law firm Vicente Sederberg.

Potential help through states

Steve Schain, a senior attorney in New Jersey and Pennsylvania for the Hoban Law Group, views the situation more bullishly.

He sees the State Small Business Credit Initiative as a funding possibility for both ancillary and plant-touching businesses. The initiative provides the following funding to state-run, small business-financing programs, Schain said:

  • $10 billion to support small businesses recovering from pandemic impacts.
  • $2.5 billion to support small businesses majority-owned by social and economically disadvantaged individuals.
  • $500 million to “very small businesses” with fewer than 10 employees.

Some of those funds “could be in play for marijuana companies,” Schain said.

Schain argues, for example, that Colorado funds should be “pursuant to state of Colorado rules, not federal prohibitions” on marijuana.

So, by that logic, a plant-touching business might be able to qualify for funding in a state where marijuana is legal.

Experts advised marijuana businesses to check with the state financing programs about eligibility.

How the small business-credit initiative works likely “is going to depend on the state-by-state patchwork” of regulations, Kappel said.

Yes to payroll tax credits

In Kappel’s view, the most exciting area for cannabis companies is the Employee Retention Credit.

Previously, a business had to experience at least a 50% decline in gross receipts compared to the same quarter a year ago.

Under the new stimulus package, a business must show a 20% decline to qualify for the tax credit, he noted.

Cannabis tax specialist and certified public accountant Dean Guske, managing director of Guske & Co. in Bellevue, Washington, agrees that marijuana businesses are eligible for that credit.

Guske and a colleague put forth the analysis in a blog after the first stimulus package was passed in 2020.

“The IRS code (that prohibits cannabis companies from taking ordinary business deductions) isn’t what controls, but the (stimulus) Act itself,” Guske said. “So as long as the business otherwise qualifies (for the tax credit), then the cannabis business will qualify.”

The hitch, though: Many if not most cannabis companies have had strong, even record, sales during the pandemic, in large part because most states declared marijuana as an “essential” business.

“Our cannabis clients are killing it,” Guske said.

Nevada was a notable exception. That state imposed some of the strictest lockdown measures in the country in March 2020, putting a virtual halt to a huge tourist market. In-store marijuana sales were banned until May 2020.

“Our Nevada clients got to take advantage of the credits because there was a governmental act that curtailed their revenue,” Guske said.

But in Washington state, “retailers had a great year in 2020.”

PPP loans still in play

The ARPA also included $7.25 billion to expand the Paycheck Protection Program (PPP), which is intended to cover payroll costs to help businesses retain workers.

The program, due to expire March 31, reportedly still has roughly $100 billion in untapped funds.

The U.S. House of Representatives voted Wednesday to extend the deadline two months to May 31, and the Senate is expected to do the same.

Kappel said the ARPA made some changes to PPP, “but it didn’t change the eligibility for cannabis businesses, so it’s the same analysis as before.”

His analysis last spring was that only certain ancillary businesses would qualify.

Last July, Law360.com reported that roughly a half-dozen cannabis-related ancillary businesses received $3.5 million to $8.7 million from the PPP.

Some U.S. Small Business Administration (SBA) regulations bar plant-touching marijuana businesses from receiving loans or grants and appear to prohibit many if not most ancillary firms as well.

But Schain said it doesn’t hurt for a cannabis-related business to apply, as long as it doesn’t make any fraudulent statements in its application.

“I’m not suggesting anything daring,” Schain said. “But if you don’t tell me someone is (specifically) excluded, then I presume they are included.”

The SBA provided only this cannabis-related example: A plumber or tech-support company that did work for a marijuana company could qualify.

While the SBA guarantees the loans and grants, financial institutions issue them.

So, ultimately, it comes down to whether a bank determines a business qualifies for PPP funds.

Schain has been a banking lawyer for 32 years, and some of his biggest clients remain banks.

He acknowledges that if a bank comes to him for advice, his response might be more conservative than his advice to a cannabis-related business applicant.

The ARPA hasn’t generated as many inquiries from marijuana-related businesses as previous stimulus packages, industry experts said.

“A lot of businesses have already determined whether they qualify,” Kappel said.

But Schain sees another possible reason.

“During the first two rounds of this, my phone rang off the hook,” he said. “It’s still ringing.

“But cannabis businesses have been led to believe they don’t have a place at the table. I think they are being beaten down.”

Jeff Smith can be reached at [email protected].


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