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Businesses That ‘Indirectly’ Work With Marijuana Industry Ineligible For Federal Coronavirus Loans

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It’s not just state-legal marijuana retailers and growers that stands to miss out on federal relief loans amid the coronavirus outbreak. In addition to that restriction, which the federal Small Business Administration (SBA) confirmed last month, a wide range of businesses that indirectly service the cannabis industry are also ineligible under recently enacted legislation.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which the President Trump signed last month, provides for a Paycheck Protection Program that offers a significant amount of forgivable loans to companies with 500 or fewer employees. Cannabis businesses—as well as ancillary firms that contribute to them with products or services—are specifically excluded from those benefits, however.

In a notice about the draft rules of the CARES Act, SBA points to a document from last year outlining businesses that are generally ineligible for its programs. One section describes how “Businesses Engaged in any Illegal Activity” can’t receive federal loans.

“SBA must not approve loans to Applicants that are engaged in illegal activity under federal, state, or local law,” it states. “This includes Applicants that make, sell, service, or distribute products or services used in connection with illegal activity, unless such use can be shown to be completely outside of the Applicant’s intended market.”

“Because federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity,” it continues. “Therefore, businesses that derive revenue from marijuana-related activities or that support the end-use of marijuana may be ineligible for SBA financial assistance.”

To that end, it’s no surprise that businesses such as dispensaries and cultivation facilities would be excluded. But it’s also the case that a large class of companies that indirectly work with the cannabis industry could also lose out on the benefits.

An ineligible “indirect marijuana business” is defined by SBA 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. The list includes “businesses that provide testing services, or sell or install grow lights, hydroponic or other specialized equipment, to one or more Direct Marijuana Businesses; and businesses that advise or counsel Direct Marijuana Businesses on the specific legal, financial/accounting, policy, regulatory or other issues associated with establishing, promoting, or operating a Direct Marijuana Business.”

Businesses that sell paraphernalia like bongs or pipes intended for cannabis use are also ineligible for the loans, SBA said.

However, the agency said its interpretation of an indirect cannabis business doesn’t extend to companies that provide general services such as plumbing or tech support for laptops that marijuana firms use, for example.

The penalty for submitting an application for the relief loans with fraudulent information is up to five years in prison and up to a $250,000 under one federal statute. Another statute makes it punishable by imprisonment of up to two years and a maximum $5,000 fine. Finally, if the application was submitted to a federally insured institution, the penalty is up to 30 years in prison and up to a $1 million fine.

“As a starting point, it is incredibly unfair that state-legal cannabis companies are not eligible for these SBA loans,” Josh Kappel, founding partner at Vicente Sederberg, told Marijuana Moment. “These companies pay Social Security and Medicare taxes, unemployment taxes, and, of course, federal corporate taxes. In every way, they deserve to be treated like any other business when it comes to these emergency loans.”

“It is even more egregious when the SBA determines, not by law but by its own regulations, that companies will be ineligible for loans if they derived any revenue in the previous year from selling products or services to state-legal cannabis companies,” he added. “In a state like Colorado, when you consider law firms, accounting firms, advertising and marketing firms, HVAC companies, lighting companies, and on and on, there are literally hundreds of small businesses that could be deemed ineligible.”

Advocates are pushing for Congress to add language to future coronavirus-related spending legislation to free up access to SBA services for state-legal marijuana businesses. But it remains to be seen whether that will materialize.

Eleven senators did recently send a letter to leadership in a key committee asking that they add a provision allowing marijuana businesses to access federal loan services in an upcoming annual spending bill, however.

“While we would like to see loans available to all cannabis companies, the SBA, at the very least, should immediately modify its regulations to remove the prohibition on COVID-19-related loans to ‘indirect marijuana businesses,'” Kappel said. “Countless jobs and small businesses could be at risk if they do not.”

Because hemp was legalized under the 2018 Farm Bill, businesses that sell the crop or those that indirectly service those companies are eligible for federal relief programs—a point SBA stressed in a recent blog post.

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Photo courtesy of Philip Steffan.

Marijuana Moment is made possible with support from readers. If you rely on our cannabis advocacy journalism to stay informed, please consider a monthly Patreon pledge.

Kyle Jaeger is Marijuana Moment's Los Angeles-based associate editor. His work has also appeared in High Times, VICE and attn.

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Missouri Launches Medical Marijuana Sales At State’s First Dispensaries

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Less than two years after Missouri voters approved a ballot measure to legalize medical marijuana, dispensaries made the state’s first cannabis sales to patients on Saturday.

N’Bliss Cannabis opened the doors of two separate St. Louis County locations, in Ellisville and Manchester.

“Missouri patients have always been our north star as we work to implement the state’s medical marijuana program,” Dr. Randall Williams, director of the Missouri Department of Health and Senior Services, said in a press release. “We greatly appreciate how hard everyone has worked so that patients can begin accessing a safe and well-regulated program.”

Officials have touted the speed with which they have gotten the voter-approved cannabis program off the ground, saying it is “one of the fastest implementations of a medical marijuana program in the United States.”

Via Missouri Department of Health and Senior Services.

“A tremendous amount of work has occurred by the licensed facilities and our team to get us to this point, and we continue to hear from more facilities that they are ready or almost ready for their commencement inspection,” Lyndall Fraker, director of the Section for Medical Marijuana Regulation, said in a press release. “We look forward to seeing these facilities open their doors to serve patients and caregivers.”

The impending launch of sales on Saturday was first announced by the Missouri Medical Cannabis Trade Association on Friday and reported by The Springfield News-Leader.

The state, which has so far licensed 192 dispensaries and expects most of them to open their doors by the end of the year, posted an interactive map that tracks the status of approved medical marijuana businesses.

For months, regulators have been caught up in lawsuits and appeals challenging their licensing decisions, with revenues that would otherwise go to supporting veteran services instead being allocated to covering legal costs.

Missouri isn’t the only state to see medical cannabis sales launch this weekend. Virginia’s first medical marijuana dispensary also held its grand opening on Saturday.

Meanwhile, recreational sales of marijuana rolled out in Maine last week—four years after voters there approved a legalization ballot measure.

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Illinois Continues Record-Breaking Marijuana Sales Streak, New State Data For September Shows

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For the fifth month in a row, Illinois is again reporting record-breaking marijuana sales, the state Department of Financial and Professional Regulation announced on Monday.

Despite the coronavirus pandemic, Illinois has seen escalating cannabis sales month-over-month. In September, consumers purchased more than 1.4 million marijuana products worth a total of nearly $67 million. Almost $18 million of those sales came from out-of-state visitors.

In August, the total sales reached about $64 million—the previous monthly record. The new adult-use sales figures don’t include data about purchases made through the state’s medical cannabis program.

This latest data seems to support the notion that the state’s marijuana market is “recession-proof” and “pandemic-proof,” as a top regulator said in August.

Via IDFPR.

State officials have emphasized that while the strong sales trend is positive economic news, they’re primarily interested in using tax revenue to reinvest in communities most impacted by the drug war. Illinois brought in $52 million in cannabis tax revenue in the first six months since retail sales started in January, the state announced in July, 25 percent of which will go toward a social equity program.

“We were not doing this to make as much money as fast as we possibly could,” Toi Hutchinson, senior cannabis advisor to Gov. J.B Pritzker (D), said. “We were actually doing this for people,” with a focus on supporting communities most impacted by the drug war.

In May, the state also announced that it was making available $31.5 million in restorative justice grants funded by marijuana tax revenue.

That said, ensuring an equitable market as promised hasn’t been easy. Regulators have recently faced lawsuits after dozens of would-be social equity licensees were denied an opportunity to participate in a licensing lottery over alleged problems with their applications. The state said it would approve 75, but only 21 ultimately qualified—and critics complain that the resources it takes to submit an acceptable application creates barriers for the exact people the special licenses are supposed to help.

The governor announced last month that new procedures would be implemented allowing rejected applicants to submit corrected forms. But on Monday, three investors who are finalists from the initial round filed a lawsuit against the state, alleging that the administration’s decision to permit resubmissions was politically motivated and illegal.

For now, the out-of-state sales data seems to support Pritzker’s prediction during his State of the State address in January that cannabis tourism would bolster the state’s coffers.

Prior to implementation, the pardoned more than 11,000 people with prior marijuana convictions.

Over in Oregon, officials have been witnessing a similar sales trend amid the global health crisis. Data released in August reveals that the state saw about $106 million in medical and recreational cannabis sales, marking the third month in a row that sales exceeded $100 million.

Vote For Marijuana Legalization Referendum To Promote Social Justice, New Jersey Governor Says

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California Governor Approves Changes To Marijuana Banking And Labeling Laws

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California Gov. Gavin Newsom (D) signed a handful of marijuana bills into law on Tuesday, making a series of small adjustments to the nation’s largest legal cannabis system. More sweeping proposals such as overhauling the state’s marijuana regulatory structure will have to wait until next year, the governor said.

Among the biggest of the new changes are revisions to banking and advertising laws. With many legal marijuana businesses are still unable to access financial services, Newsom signed a bill (AB 1525) to remove state penalties against banks that work with cannabis clients.

“This bill has the potential to increase the provisions of financial services to the legal cannabis industry,” Newsom wrote in a signing statement, “and for that reason, I support it.”

Democrats in Congress, meanwhile, have been working for months to remove obstacles to these businesses’ access to financial services at the federal level. A coronavirus relief bill released by House Democratic leaders on Monday is the latest piece of legislation to include marijuana banking protections. Past efforts to include such provisions have been scuttled by Senate Republicans.

In his signing statement on the banking bill, Newsom directed state cannabis regulators to establish rules meant to protect the privacy of marijuana businesses that seek financial services, urging that data be kept confidential and is used only “for the provision of financial services to support licensees.”

Another bill (SB 67) the governor signed on Tuesday will finally establish a cannabis appellation program, meant to indicate where marijuana is grown and how that might influence its character. The system is similar to how wine regions are regulated.

Under the new law, growers and processors under the new law will be forbidden from using the name of a city or other designated region in product marketing unless all of that product’s cannabis is grown in that region. Similar protections already apply at the county level.

For outdoor growers, the new law recognizes the importance of terrior—the unique combination of soil, sun and other environmental factors that can influence the character of a cannabis plant. For indoor growers, it provides a way to represent a hometown or cash in on regional cachet.

Most of the other new changes that the governor signed into law are relatively minor and will likely go unnoticed by consumers. One, for example, builds in more wiggle room on the amount of THC in edibles (AB 1458), while another would allow state-licensed cannabis testing labs to provide services to law enforcement (SB 1244).

The bills were approved by state lawmakers earlier this month, as the state’s legislative session drew to a close.

Other pieces of cannabis legislation passed by the legislature this session were met with the governor’s veto. On Tuesday, Newsom rejected a proposal (AB 1470) that would have allowed processors to submit unpackaged products to testing labs, which industry lobbyists said would reduce costs. Currently products must be submitted in their final form, complete with retail packaging. Newsom said the proposal “conflicts with current regulations…that prevent contaminated and unsafe products from entering the retail market.”

“While I support reducing packaging waste, allowing products to be tested not in their final form could result in consumer harm and have a disproportionate impact on small operators,” Newsom said in a veto statement.

Those changes to testing procedures should instead be considered next year, Newsom said, as part of a pending plan to streamline California’s cannabis licensing and regulatory agencies.

“I have directed my administration to consolidate the state regulatory agencies that currently enforce cannabis health and safety standards to pursue all appropriate measures to ease costs and reduce unnecessary packaging,” he wrote. “This proposal should be considered as part of that process.”

Newsom also last week vetoed a bill (AB 545) that would have begun to dissolve the state Bureau of Cannabis Control, which oversees the legal industry. In a statement, the governor called that legislation “premature” given his plans for broader reform.

“My Administration has proposed consolidating the regulatory authority currently divided between three state entities into one single department,” Newsom wrote, “which we hope to achieve next year in partnership with the Legislature.”

Earlier this month, the governor signed into law one of the industry’s top priorities for the year—a measure (AB 1872) that freezes state cannabis cultivation and excise taxes for the entirety of 2021. The law is intended to provide financial stability for cannabis businesses in California, where taxes on marijuana are among the highest in the nation.

The state’s leading marijuana trade group, the California Cannabis Industry Association (CCIA), applauded the governor’s moves. All the bills approved by Newsom this week had the industry group’s support.

“We thank Governor Newsom for prioritizing these bills, which seek to reduce regulatory burdens, improve enforcement, expand financial services and enhance the state’s cannabis appellation’s program,” CCIA Executive Director Lindsay Robinson said in a message to supporters on Wednesday. “Like so many, the cannabis industry has faced a series of unexpected challenges and setbacks in 2020. We look forward to continuing to work with the Newsom Administration, and the Legislature, as we pursue a robust policy agenda in 2021.”

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Image element courtesy of Gage Skidmore

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