Friday, May 24, 2024

Will Cannabusiness Get Bailed Out From Losses During And After Pandemic?

If a business is declared “essential” during this time, shouldn’t it be allowed to get in line for some federal assistance?

The $2 trillion coronavirus stimulus package is expected to be signed any moment, bringing a collective sigh of relief across the country. Plus, the stock market is trending up (for now). But lingering questions remain: What about the federally illegal cannabis business? Will the states take care of them?

The short answer is maybe…but probably not. Once again, cannabusinesses are left in the lurch trying to figure out what to do to be treated as any other business.

Just look at what is going on now. Cannabusinesses are scrambling to designate recreational cannabis businesses as “essential” so they can stay open (most states consider medical cannabis facilities essential). Some states, such as Massachusetts, where recreational cannabusinesses have been forced to close, are claiming that they are as essential as medical cannabusinesses.

And one dispensary in Nevada is transitioning from both medical and recreational to just medical, telling The Fresh Toast in an email that the dispensary will be temporarily holding all recreational transactions until further notice “for the safety of the community.”

The thinking here is that if you declare a business as “essential” during this time, you should not only be allowed to stay open, but more likely to be allowed to get in line for some federal assistance channeled to your business from the state.

RELATED: Medical Marijuana Considered ‘Essential’ Good During Quarantines

But will the feds see it that way for the cannabis businesses? The short answer, again, is probably not.

Remember what happened when fires engulfed cannabis grows in northern California in late 2017? Some 34 cannabis farms were destroyed in a fire that grew to nearly 37,000 acres in Mendocino County alone right at harvest time. Three of the top ten most destructive wildfires in California history happened from October through December, 2017 on prime agriculture land. Not only was product destroyed, but because cannabis is mostly a cash-only business, some of the grower’s cash revenue was also burned.

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Photo by Darren Halstead via Unsplash

California Governor Jerry Brown made a disaster proclamation during that time, and requested $7.4 billion in federal disaster relief funding. But the Federal Emergency Management Agency (FEMA) would not provide funds for those affected cannabis growers.

So here we are today. If a cannabusiness has insurance now, they may be able to use the force majeure clause in this time of virus outbreak — the so-called “act of God” clause that businesses can invoke because the outbreak is forcing businesses to shut down and workers to stay at home.

RELATED: How The Coronaviurs Has Negatively Impacted Marijuana Legalization

Lawyers have said that force majeure can be applied not only to those obvious business losses, but possibly such things as damage to equipment that has come in contact with the corona virus, like desks and other furniture.

Can a cannabusiness claim that? Again, probably not. Few cannabusinesses likely included a force majeure clause in their expensive insurance policy. Even if that clause is in their insurance policy, they can be subjected to varying and narrow interpretations.

A cannabusiness should at least have some sort of disaster plan in place as part of their due diligence in setting up their business. But in this still-maturing industry, with valuations still fluctuating and mergers and acquisitions becoming part of the landscape, details like a disaster plan have not been a high priority.

So now what?

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Photo by Aleksandr_Kravtsov/Getty Images

The $2 trillion stimulus package passed on March 25 reportedly includes $367 billion for a small business loan program. But that won’t help. The government still says that cannabis businesses are not eligible for any assistance from the Small Business Administration (SBA), something that could be remedied if the MORE Act passes. But passage of the act is unlikely to happen this year — MORE has been parked in the Senate Finance committee since the end of July, 2019.

There may be some light to shed on the situation. On March 18, the Trump administration approved an emergency funding bill, the Families First Coronavirus Act, that includes nearly a billion dollars in funding to aid state-administered unemployment programs.

According to the National Organization for the Reform of Marijuana Laws (NORML), the transfer of funds from the federal government to the state governments under this funding bill should allow the states to decide which industries are eligible to get unemployment benefits. So cannabis workers may be able to get help through that bill.

RELATED: How The Coronavirus Is Impacting The Cannabis Industry

And in a move that other states may adopt, a business may already be covered for losses due to the virus without a specific force majeure clause, according to a bill in the state of New Jersey.

The fight to get help for cannabusinesses has also been taken up by various cannabis advocacy agencies, weighing in on getting help from states’ governors, and others notifying Congress how the cannabis business was left out of the $2 million disaster assistance low-interest loans for small businesses announced by the SBA on March 12.

One example of an advocacy group’s concern regarding the $2 trillion stimulus package comes from Violet Cavendish, communications manager at the Marijuana Policy Project:

“Excluding marijuana businesses in the relief package is yet another consequence of the discrepancy between federal and state marijuana laws. As state leaders across the country have deemed marijuana businesses as ‘essential’ in the midst of stay-at-home orders, businesses and employees are working through this crisis to ensure access to marijuana for the hundreds of thousands of patients who have adopted it into their treatment regimens. Denying these businesses any form of economic assistance or security is not only wrong, it also emphasizes the urgent need for marijuana policy reform at the federal level.”

Bottom line is that there are still too many moving parts, still too many variables to say if, when and how the cannabis industry can get help.


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