Will Cannabis Businesses Get Federal Coronavirus Money? Probably Not.

14 Apr Will Cannabis Businesses Get Federal Coronavirus Money? Probably Not.

Right now, economic times are tough for almost every single American and individual business in this country, large or small. Unemployment is at depression-era levels, and companies are doing whatever they can to cut costs and save employees while the COVID-19 pandemic rages on. Unless you haven’t been paying attention, the Feds took historic steps to pass the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which provides limited financial relief to individuals and businesses to try to remedy the financial havoc caused by the pandemic. Specifically, CARES Act provides $2 trillion in funding to businesses and individuals affect by COVID-19. Namely, $500 billion will be allocated to large corporations and $350 billion will be given out in the form of small business loans geared towards maintaining employment numbers and economic stability. Billions of dollars in debt relief for existing business loans are also available. While all of this sounds great (although the roll out of the program has not been the smoothest), cannabis businesses and even ancillary cannabis businesses won’t see a dime of this federal financial relief.

Where cannabis businesses remain federally illegal (because cannabis is a Schedule I controlled substance under the Controlled Substances Act), they are not eligible to get any benefits under the CARES Act. Additionally, federal illegality prevents cannabis businesses from receiving newly created “disaster loans” from the U.S. Small Business Administration (SBA) under the Coronavirus Preparedness and Response Supplemental Appropriations Act. (The SBA determined back in 2018 that cannabis businesses wouldn’t be eligible to receive federal loans). Notably, where hemp is no longer a Schedule I controlled substance, those businesses are likely free to take advantage of the foregoing federal relief (though it’s dicier for hemp-CBD businesses that violate the Food, Drug & Cosmetic Act).

For an industry that’s created thousands of jobs and generated hundreds of millions of dollars in local, state, and federal tax revenue, to be left out of the CARES Act is fundamentally unfair. Federal law “is what it is” when it comes to cannabis, but the Feds have made significant exceptions for the cannabis industry before. For example, the NLRB had no problem going after cannabis business employers engaged in violations of labor and employment laws. The SEC allows cannabis ancillary businesses to be traded over the counter. FinCEN instituted guidelines to allow for cannabis business to secure bank accounts under certain circumstances even though such activity clearly constitutes money laundering under the Bank Secrecy Act. And the Department of Justice has at times instituted enforcement criteria to remain entirely hands off when it comes to prosecuting state licensed cannabis business owners under federal law (see, e.g., the 2013 Cole Memo) and even Native American Tribes (see the 2014 Wilkinson Statement).

Whether the Feds like it or not, state legal cannabis is a growing part of the country’s economy that doesn’t deserve the financial snub it’s getting under the CARES Act. And the Feds have in no way been consistent about enforcement unless it comes to towing certain political lines around the failed War on Drugs (in my opinion). What’s also incredibly illuminating here is that states on the whole have pronounced medical cannabis (and in some cases adult-use cannabis) businesses to be “essential” and that they’re allowed to remain open during COVID-19 under multiple state and local stay-at-home orders (see, e.g., California).

It’s becoming increasingly clear that the Feds will need to engage in a second-round stimulus package to save businesses in the U.S. from the financial disaster caused by COVID-19. And this time around Representative Ed Perlmutter from Colorado is going to bat for cannabis businesses to get some recognition for these federal funds. Per Marijuana Moment:

On a town hall call with small businesses in his Colorado district [last week], Perlmutter was asked by the executive director of a top marijuana company whether the cannabis market has any hope of becoming eligible for federal loan and lending programs, as businesses that work with marijuana directly or indirectly are currently excluded from [SBA] benefits.

In response, Perlmutter stated:

We have prepared legislation that we hope will be in the next package. Probably not the one that’s being discussed right now, but we’ve asked for legislation to allow for banking, for SBA lending, for testing to be part of the next package . . . Whether we’re going to get it, whether we can get the Senate to finally get off of their fannies and pass it, I don’t know. But you can rest assured that the issue you raised is front and center.

And according to Perlmutter, Speaker of the House Nancy Pelosi is on board with the proposal that cannabis businesses at least get access to banking under any future stimulus package. Only time will tell if this much-needed financial assistance will come through for cannabis and ancillary cannabis businesses. The likely truth, though, is that the cannabis industry will not be bailed out by the Feds. The Feds pick and choose when they want to let up on the industry, and federal cannabis funding probably isn’t high on Congress’s list of to-dos.

Unfortunately, for essential cannabis businesses (and for the hundreds of thousands of patients and adult-use customers who opt to forego accessing the illegal cannabis market), they will likely have to do their best to support themselves for the worst case financial scenario, or they will have to lean on their local and/or state governments for financial aid. While Representative Perlmutter’s goals are noble and on the right side of history, the politics around the federal illegality of cannabis will likely stymie any financial assistance during COVID-19.