Companies Tied to Cannabis Industry Excluded from ‘Corona-loans’
Legal marijuana retailers and cultivators are not the only ones who will not receive federal relief loans during the coronavirus outbreak. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, provides for a Paycheck Protection Program offering a substantial amount of forgivable loans to companies with 500 or fewer employees. The federal Small Business Administration (SBA) confirmed that an array of businesses that provide services to the cannabis industry are not eligible either.
The scope of the SBA’s provision
In a communication about the draft rules of the CARES Act, SBA refers to a document from last year that sketched out which type of businesses are ineligible for its programs. One section mentions “Businesses Engaged in any Illegal Activity” under federal, state, or local law. The statement refers also to those companies that “make, sell, service, or distribute products or services used in connection with illegal activity”, unless the applicants are able to prove that such usage falls completely outside of what their intended marketplace would be. As for cannabis businesses like dispensaries and cultivation facilities, it is no wonder they are being denied these loans. Yet, given federal law prohibits the distribution and sale of cannabis, financial transactions involving cannabis-related business would implicate illicit funds, regardless what product or service the company would be actually providing. SBA defines an ineligible “indirect marijuana business” as “a business that derived any of its gross revenue for the previous year (or, if a start-up, projects to derive any of its gross revenue for the next year) from sales to Direct Marijuana Businesses of products or services that could reasonably be determined to aid in the use, growth, enhancement or other development of marijuana.”
SBA provides specific examples of such companies, including testing laboratories, resellers and manufacturers of paraphernalia grow lights, hydroponic and other specialized equipment, and counselors of all sorts, be it for legal, financial, marketing or campaigning purposes.
Harsh penalties and double standards
The punishment for applying for the relief loans with fraudulent information is incarceration for up to five years and fines up to $250,000, under one federal statute. Another statute instructs imprisonment of up to two years and a maximum $5,000 penalty. And, if the application was submitted to a federally insured institution, the sentence involved is up to 30 years in prison and fines as high as $1 million. Far from being surprising, considering the federal government’s attitude towards the cannabis industry, it still remains a quite unfair deliberation. Cannabis companies pay Medicare, Social Security, federal corporate taxes and unemployment taxes, like any other business. Yet, unlike any other business, they are not entitled to governmental financial support during these times of economic uncertainty. The federal government happily collects cannabis-derived tax money as legit funds. Yet, somehow, in a ‘double-standarded’ fashion, that same government deems cannabis-related revenues as illicit funds, and will thus refuse to support any business revolving around these funds.
Voicing dissent
Considering the amount of different businesses that provide services to cannabis companies in legal states, the SBA’s deliberation has all the potential to negatively impact hundreds and hundreds of federally legal businesses all across the USA. Lobbyists are pressuring Congress to include language to future coronavirus-related spending legislation to ensure access to SBA services for state-legal marijuana businesses. Moreover, eleven senators recently advocated for the competent committees to allowcannabis businesses to access federal loans. Yet, whether these efforts will see any success is still to be seen.
