Feds say no to help for Northern California cannabis firms hurt by coronavirus restrictions

While they pay taxes and provide jobs, North Bay cannabis businesses say they are facing a double standard when it comes to the COVID-19, because the federal view of their product as a controlled substance means no payroll relief loans.

“It's just one more way the federal government is punishing cannabis businesses,” National Cannabis Industry Association spokesman Morgan Fox told the Business Journal. “There's really nothing available to them.”

Fox pointed out that the state is giving the industry a hand.

For one thing, California has waived fees in these challenging times as companies struggle to operate and survive amid an era of trying to serve the uncertain consumer while facing increased expenses. Like many industries during the coronavirus outbreak, the financial strains may take an insurmountable toll on these businesses.

“I don't have an exact figure, but there will certainly be closures from this,” said Fox, whose Washington, D.C.-based organization represents 2,000 cannabis-related members. “They're facing additional costs to meet public safety protocols. It's unfair.”

Despite cannabis making its mark as what Fox calls a “vital part of continuing health care,” any efforts to remove or relax the federal ban, including in the area of banking, has gotten through the House but is stuck in the Senate.

“This experience of being held to a double standard hurts small business, and it hurts bigger businesses, but it's been going on for years,” Cannacraft Vice President of Wellness Tiffany Devitt said.

Devitt sees the work of the Santa Rosa company as not only providing recreational marijuana but serving clients in a medicinal way - with accentuated importance during this pandemic period. One example: with massage therapists and chiropractors shut down, a patient with a back injury may receive help with pain management.

Not eligible for federal pandemic relief loans

Although the federal aid through the Small Business Administration would help restore salary cuts to some in the organization of 200 employees, Devitt said it didn't take long before the Santa Rosa-based company decided to pass on filling out the Payroll Protection Program loan application.

“Fundamentally what this conflict is about is ‘are we legal or aren't we legal,” she summarized.

In some respect, the hurdles represent familiar territory for cannabis business operators.

It's this type of government conflict that keeps Solful CEO Eli Melrod scratching his head in bewilderment.

“I appreciate the state for supporting the cannabis industry,” he said. “We're required to comply to employee mandates, but we don't get access to PPP funds.”

Melrod, who runs the Sonoma County dispensary operation, views the federal government's failure to recognize cannabis as a legitimate industry as a hypocritical double standard.

From grower to retailer, the hypocrisy pointing a finger at the feds is witnessed throughout the supply chain.

“Well, in one sense, the federal government has been consistent. They continue to say we don't qualify as a legitimate business, but we could be put in jail if we don't pay our taxes. They most certainly want our taxes,” said Eric Sklar, founder of Fume.

Beyond state excise and income taxes as well as permitting fees, cannabis operations are still required to pay federal employment taxes and into Social Security.

“If it was legal, we'd be happy to pay because we'd get the benefits,” Sklar said.

The operation that cultivates, processes and sells cannabis in Sonoma and Lake counties also didn't even bother to apply for an SBA loan to help with his staff of 80 employees.

According to SBA regulations, these are examples of types of operations ineligible for relief:

Marijuana growers or dispensaries

Marijuana testing labs

Sellers of grow lights to marijuana businesses

Sellers of smoking devices that are intended for marijuana use

Exclusions may also involve businesses that grow, produce, process, distribute and sell products made from hemp.

One cannabis marketer was so nervous about the strict regulations and penalties, she rescinded her application after submitting it.

“My investors encouraged me to apply against my better judgment. I had a sense of not wanting the federal government involved in my cannabis business but was told that nothing would preclude us from applying for PPP,” said Alicia Rose, who owns the Herba Buena cannabis retail operation in the Wine Country.

She ended up backing out of the applications upon reading language regarding the PPP loan program about those “making a false statement to obtain a guaranteed loan from SBA.” The penalties may result in a fine of up to $250,000 and possible jail time of up to two years.

According to SBA spokeswoman Shannon Giles, the prohibition does not specify any particular type of business.

Still, the threat of an intrusive federal government prompted Rose to pull back and tough out any financial setbacks on her own.

“It's just another Tuesday of trying to operate a cannabis-driven company at this time,” she said.

During the coronavirus crisis, Rose has scaled back much of her operation while waiting to proceed with an expansion in Santa Rosa. Her dream project is an 8,400-square-foot development that consists of a retail marketplace, demonstration garden, consumption rooms and manufacturing facility.

The focus of Rose's operation lately has been the cannabis marketing consulting arm, which is still prohibited by SBA standards from collecting financial aid.

The ban involves both direct and indirect marijuana businesses, according to regulatory language. A direct business ranges in activity from growing and processing to selling and distributing. An indirect operation derives “any of its gross revenue to a direct marijuana business of products or services that could reasonably be determined to aid in the use,” like that of Rose's consultative operation.

State comes to the rescue

Unable to get federal aid, cannabis firms have received help from California officials who have stepped up efforts to assist an industry Arcview market research estimates will surpass $5 billion in market value in the next few years.

Three state cannabis licensing authorities announced a few weeks ago that businesses with California licenses expiring between now and June 30 may request a 60-day deferral of fees.

The license fee deferrals provided by the state Bureau of Cannabis Control as well as the departments of Food & Agriculture and Public Health are intended to provide immediate financial assistance to licensees impacted by the coronavirus outbreak. The fees range from $1,000 and reach $300,000, depending on the size and type of the organization.

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