Cannabis companies have been locked out from most of the COVID-19 relief loan and grant programs due to their legal status at the federal level. Those companies, however, are not prohibited from some tax relief provided in the CARES Act and provided by most states. Here, we have compiled a list of the tax relief offered by each state with a legal cannabis program. The tax relief provided by the CARES Act and the states will most likely not help as much as it would having access to the other relief programs, but hopefully they can offer some breathing room while navigating this pandemic.
Yesterday, several adult-use marijuana establishments, and one medical marijuana patient, filed suit against Massachusetts Governor Charlie Baker requesting preliminary and permanent injunctive relief challenging his Covid-19 Order No. 13 and Covid-19 Order No. 21 (Orders) issued in relation to the current COVID-19 pandemic.
The Orders closed adult-use retail establishments at noon on March 24, and won’t allow them to reopen, at the earliest, until May 4. The Orders, however, declared that medical marijuana establishments (MME) and liquor stores were “essential businesses” and permitted that they remain open during the crisis. The public rationale the Governor provided for this decision was to deter out of state residents from coming to Massachusetts to buy weed, as it is the only state in the region to allow recreational sales. Specifically the Governor stated:
If we make recreational marijuana available, we are going to have to deal with the fact that people are going to come here from all over the place, across the northeast and create issues for us with respect to the fundamental issue we are trying to solve for here — which is to stop the spread…
Massachusetts seems to be the only state that has deemed medical marijuana essential but adult-use/recreational marijuana non-essential. States such as California, Colorado and Illinois have declared both medicinal and recreational establishments “essential,” and states like Michigan and Alaska have permitted licensed cannabis businesses to remain open (for a more detailed analysis regarding the current status of cannabis businesses around the country see the Fox Cannabis Group’s alert, which can be found here).
The crux of the plaintiffs’ argument is that the Orders are an equal protection violation under both the United States and Massachusetts Constitutions. Plaintiffs allege that “by classifying adult-use marijuana establishments as non-essential, while classifying similar regulated businesses—such as liquor stores and medical marijuana dispensaries—as essential, the Executive Orders violate the constitutional rights of the plaintiffs and exceed the Governor’s executive authority.” They argue that there is no legitimate or rational basis to allow liquor stores and MMEs to remain open while mandating that adult-use stores close their doors, or to differentiate between the people who frequent those stores.
Despite Massachusetts adult-use operators pledging that they are willing to follow social distancing guidelines, implement curbside pickup and appointment only sales, and only sell to Massachusetts residents, Governor Baker has stuck with his decision in the Orders. As a result, the plaintiffs say the Orders have effectively closed 43 licensed stores, employing approximately 8,000 people, and prevented at least 21 provisionally licensed stores from opening.
We have previously written about the fact that marijuana-based cannabis companies will not be eligible for SBA loans or other federal loan assistance issued under the CARES Act. The Fox team has prepared a summary of some state law alternatives which cannabis companies are eligible for, which can be found here.
Cannabis companies operating in the marijuana space face some unique difficulties when it comes to the COVID-19 crisis. As my colleague posted about last week, those companies will not be able to take advantage of the SBA loans offered under the CARES Act. It is likely they will also not be able to access the CARES Act’s payroll protection loans because those loans are administered by the SBA. Companies operating in the hemp space should be able to take advantage of the various loan programs. The Fox team has prepared a list of state loan programs that cannabis companies may be able to take advantage of.
Although marijuana businesses may not receive the financial benefits of the CARES Act, they must comply with the CARES Act, the Families First Coronavirus Response Act (FFCRA), and other related legislation. Fox has a number of resources covering these requirements in our Coronavirus Resource Center, including this recent piece focusing on certain FFCRA requirements and small business exemptions from FFCRA.
The Illinois Department of Agriculture recently released a policy for cultivators regarding the use of hemp in medical and adult use cannabis products. The complete version of the policy can be found here. The policy will be in effect through October 31, 2020, although it is subject to change at any time by the Department.
First, the policy clarifies that the term “cannabis” does not include industrial hemp as defined and authorized under the Illinois Industrial Hemp Act. Under that Act, the term “industrial hemp” means any part of the cannabis plant, whether growing or not, which has a Delta-9 THC concentration of less than three percent, on a dry weight basis, and that has been cultivated under a license issued under the Industrial Hemp Act or is otherwise lawfully present in Illinois.
The policy provides that cannabis business organizations licensed to cultivate, grow, process, manufacture and/or infuse medical and/or adult-use cannabis (collectively, “Cannabis Cultivation Centers”) that wish to use industrial hemp (e.g., add industrial hemp CBD to cannabis products) must obtain a Hemp Processor’s Registration through the Department of Agriculture.
Once a Cannabis Cultivation Center obtains such license, it can purchase and extract industrial hemp flower and biomass from licensed growers and/or processors in Illinois or any other state with a regulated industrial hemp program. If requested by the Department of Agriculture or the Illinois State Police, Cannabis Cultivation Centers must provide a copy of the applicable hemp grower or processor’s state license for any purchased hemp flower or biomass.
The industrial hemp may be procured and/or processed in distillate or isolate form solely as an ingredient in cannabis-infused products offered for sale to licensed dispensaries, and may not be sold to dispensaries in hemp flower form. All processed hemp derivatives must be accompanied with a certificate of analysis showing potency levels for Delta-9 THC, THCa, CBD and CBDa, and representative samples of all final products containing industrial hemp or hemp derivatives must undergo the same testing required for other medical and adult-use cannabis products.
As mentioned above, the policy is subject to change at any time by the Department of Agriculture. We will provide updates on this blog regarding any future changes.
On March 28th, Illinois Governor JB Pritzker issued an Executive Order extending the deadline for submitting applications for adult use Craft Grower, Infuser and Transporter licenses until April 30, 2020 and directing all applications to be submitted via certified mail. Applications delivered in person or sent via FedEx or UPS will not be accepted. Additional details are available at the Department of Agriculture’s website.
On March 23, the federal Small Business Administration (SBA) stated that cannabis businesses will not be eligible for loans under its Economic Injury Disaster Loan (EIDL) Program, despite expanding the program in response to COVID-19 (Coronavirus). However, the SBA noted that businesses that produce or sell hemp and hemp-derived products may apply for such loans.
An EIDL can provide low-interest financial assistance to a business that suffers substantial economic harm as a result of a federally-declared disaster. In the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, Congress included provisions allowing the SBA to provide EIDLs to businesses affected by the Coronavirus, and President Trump announced that he authorized the SBA to offer an additional $50 billion of such loans.
As a testament to the fast-paced environment in which businesses and government find themselves in the wake of the Coronavirus, the “announcement” came in the form of tweets from the SBA’s Pacific Northwest division:
With the exception of businesses that produce or sell hemp and hemp-derived products (Agriculture Improvement Act of 2018, Public Law 115-334), marijuana-related businesses are not eligible for SBA-funded services (OMB, 2 C.F.R. § 200.300).
— SBA Pacific NW (@SBAPacificNW) March 23, 2020
When asked to provide their reasoning, the SBA pointed to the federal prohibition on marijuana:
Sure. It says “to ensure that federal funding is expended and associated programs are implemented in full accordance with U.S. statutory and public policy requirements.” In short, it's because marijuana is not federally legal & SBA is a federal agency. (1/2)
— SBA Pacific NW (@SBAPacificNW) March 24, 2020
Given the federal government’s stance on marijuana, this policy seems unlikely to change. However, additional developments or a more formal announcement from the SBA could shed light on more nuanced situations (for example, a parent company that does not “touch the plant” or an entity that produces both cannabis and hemp products). We will continue to keep apprised of any developments from the SBA. Stay tuned…
Every business and individual has been or will be impacted by the 2019 novel Coronavirus that causes the disease known as COVID-19. The legal questions and concerns raised by this ongoing, widespread and unpredictable crisis are changing day to day. Fox attorneys are closely monitoring the legal and regulatory landscape to provide our clients with useful information to assist in their plans. For more information, see Fox Rothschild’s Coronavirus Resource Page.
Like all businesses navigating the current COVID-19 crisis, cannabis companies are eager to understand how state and local orders will impact their operations. As states issue orders requiring all but essential businesses to close, a key question is whether cannabis businesses can continue to operate.
Some states have explicitly included cannabis companies as essential businesses, while others have not given explicit guidance. The Fox Cannabis Group is closely following the evolving landscape and team members have prepared an alert regarding the current status in key states, which can be found here.
In recent days, the Governors of both New Jersey and Pennsylvania have ordered the closure of certain businesses deemed non-essential as part of each state’s COVID-19 mitigation efforts. Further guidance from both states has made clear that medical marijuana dispensaries are deemed essential businesses and can remain open until further notice.
The official within New Jersey Department of Health who oversees the program confirmed last week that all dispensaries in the state will remain open. In Pennsylvania, Governor Wolf’s announcement indicated that pharmacies and other healthcare facilities were deemed “essential.” The Pennsylvania Department of Health later clarified in a statement that medical marijuana dispensaries fall into the same classification as pharmacies, and can remain open as essential businesses.
Dispensaries in these states (and nationally) have taken measures to ensure “social distancing,” such as limiting the number of individuals who may enter the dispensary at once and prohibiting patients from entering if they are exhibiting symptoms of COVID-19. Licensed dispensaries should consider enacting similar measures in order to mitigate the potential for exposure to COVID-19 by its employees and customers. Fox Rothschild has created several resources for business seeking to implement a Coronavirus response plan, which can be found here.
Every business and individual has been or will be impacted by the 2019 novel coronavirus that causes the disease known as COVID-19. The legal questions and concerns raised by this ongoing, widespread and unpredictable crisis are changing day to day. Fox attorneys are closely monitoring the legal and regulatory landscape to provide our clients with useful information to assist in their plans. For more information, see Fox Rothschild’s Coronavirus Resource Page.
Illinois Craft Grower, Infuser and Transporter Applications are Now Due March 30, 2020
On March 12th, due to concerns about COVID-19, Illinois Governor JB Pritzker issued an Executive Order extending the deadline for submitting applications for adult use Craft Grower, Infuser and Transporter licenses by two weeks, until March 30, 2020. The Executive Order also directed all applications to be submitted via USPS certified mail. Applications delivered in person or sent via FedEx or UPS will not be accepted.
Ohio Company Accused of Misrepresenting Minority Ownership
In Ohio, a cannabis company was accused of misrepresenting its ownership structure in order to qualify as a minority-owned business. The company is 51% owned and controlled by a businesswoman who is a member of an “economically disadvantaged group.” However, the Ohio Board of Pharmacy claimed the businesswoman was only a 51% owner on paper, that she did not actually own and control the company and that the company committed fraud, misrepresentation or deception by including this ownership information in its application. The company did not admit to any violations or wrongdoing and resolved the issue by submitting an amended and restated operating agreement and agreeing to make a $500,000 donation to the Ohio Automated Rx Reporting System.
Social Equity Status in Illinois
Illinois’ cannabis applications are competitive, where licenses are granted based on a competitive scoring process. For new adult use licenses (dispensaries, craft growers, infusers and transporters), an applicant’s social equity status accounts for 20% of the available application points. Thus, most applicants attempt to qualify for social equity status. For example, applications for Illinois’ new 75 adult use dispensaries were due on January 2, 2020 and the Illinois Department of Financial and Professional Regulation reported that over 700 applicants submitted applications and that 600 of those applicants identified as qualifying for social equity status (those 75 licenses will be awarded on or before May 1, 2020).
There are three ways to qualify as a social equity applicant in Illinois:
- 51% ownership and control by one or more individuals who have resided for at least 5 of the last 10 years in a Disproportionately Impacted Area;
- 51% ownership and control by one or more individuals who: (i) have been arrested for, convicted of, or adjudicated delinquent for any offense that is eligible for expungement under the Act; or (ii) is a member of an impacted family; or
- A minimum of 10 full-time employees with at least 51% of current employees who: (i) currently reside in a Disproportionately Impacted Area; or (ii) have been arrested/convicted/adjudicated delinquent for an expungeable offense.
Do Not Misrepresent Social Equity Status
The above Ohio example is a reminder that statements and representations in cannabis applications are investigated by regulators. In Illinois, if you apply as a social equity applicant and claim your company is 51% owned and controlled by a social equity owner(s), that owner(s) must truly own and control the day to day activities of the company. If they do not, expect an investigation from the regulators.