It may come as no surprise that cannabis dispensaries and growers are not eligible for some relief measures passed by Congress — despite widespread reform, these businesses are selling a substance that is still federally illegal.
But according to guidance from the Small Business Administration, even businesses that serve the cannabis industry indirectly, such as hydroponics and garden supply stores, might be barred from the main loan programs in the CARES Act — the Paycheck Protection Program and the Economic Injury Disaster Loan program.
“We’ll see how far they want to push it,” said Jim Marty, a CPA and the CEO of BridgeWest, a cannabis focused accounting firm. “At this point a lot of it’s a judgement call. I think these rules are being interpreted right now, as we speak.”
One garden supply store owner, Jonathan Napoli of Boston Gardener in Massachusetts, was not surprised to hear that his small business might not be eligible for federal relief. “It’s par for the course in the cannabis industry,” he said, “we’re used to being held to a different standard.”
Napoli, who is also a cannabis consultant, runs a small company that sells growing supplies to both neighborhood vegetable gardeners and large marijuana growers. With just two employees, he is a textbook small business owner. “Nothing that we’re doing is federally illegal,” he said. “I don’t know how they could justify a garden shop not receiving those funds.”
The Small Business Administration guidance states that “businesses that derive revenue from marijuana-related activities or that support the end-use of marijuana may be ineligible for SBA financial assistance.”
Notably, this includes any business that “derived any of its gross revenue for the previous year from sales to Direct Marijuana Businesses,” which casts a wide net over anyone who sells products or services to growers and dispensaries.
The SBA rules specifically mention businesses that “provide testing services, or sell or install grow lights, hydroponic or other specialized equipment” to cannabis companies. Businesses that advise the industry, such accountants or public relations companies, will also be affected.
Although Napoli does fill big orders for growers, he said, “in the springtime, right now, most of our clients are just normal gardeners in the city of Boston! They’re buying their springtime vegetables, flowers, and soil.” He sees the SBA loan requirements as another roadblock in a long series of hypocritical decisions about the cannabis industry.
However, he said his business is “doing everything we can to avoid needing relief money. We’ve been doing this since 1995 and I’ve never thought that the federal government was going to come help us out in any way.” Boston Gardener’s retail space is closed, and business is down since this time last year, but they are still fulfilling orders and offering curbside pickup of garden supplies.
Marty, the CPA, told The Stash he is optimistic that relief loans will be pushed out without too much trouble, even for businesses like Napoli’s that fall into the cannabis grey area. “There’s so much political pressure to get these loans in people’s bank accounts, into the small business bank accounts, I don’t know how much underwriting scrutiny they will do now,” he said.
There may even be some help for cannabis growers and sellers, Marty wrote in a recent blog post. This would come from programs not administered by the SBA, including a social security tax deferral and a payroll tax credit.
Despite the coronavirus, and Massachusetts closure of recreational cannabis retailers, Napoli does not see marijuana cultivation slowing down. “All the cultivators that we supply, who are medical, are still growing,” he said. “Everyone’s got to keep their grows moving along, for sure. Retail stores are going to have a tough time, maybe, but the vertically integrated cultivators and medical people, those are all people with deep pockets. I don’t expect to see them go down anytime soon.”
For cannabis affiliated businesses who aren’t so lucky, Democratic Senators Ron Wyden and Jeff Merkely called on the Senate Appropriations Committee in late March to force the SBA to consider loan applications from the industry. “Small businesses in states with some form of legal cannabis must choose between remaining eligible for SBA loan programs, or doing business with a rapidly-growing and legal industry,” they wrote.
The letter was co-signed by a handful of other Democratic senators, but the proposal has a limited chance of passing and would not change prospects for immediate relief.