The U.S. government stimulus program has sought – with urgency – to help keep smaller firms across the country hanging on until reopening becomes feasible. In perhaps the most visible example, the Paycheck Protection Program (PPP) has aimed to provide more than $600 billion in forgiveness loans to small and medium-sized businesses (SMBs) – but some verticals have been excluded. Among those ineligible for PPP loans have been SMBs that deal with legal cannabis.
On one hand, The Wall Street Journal reported recently that legal marijuana businesses initially saw high demand for their wares as the pandemic hit – and thus did not necessarily need extra sources of funding. “People were hoarding cannabis as if it were toilet paper,” Rezwan Khan, director of global development at DNA Genetics Inc., a California-based marijuana producer, told the paper.
While cannabis is legal to various extents in three dozen states, it’s still illegal at the federal level, and the U.S. Small Business Administration (SBA) said at the time that legal weed firms were ineligible for funds. But that was then and this is now.
Like pretty much any business landscape dominated by smaller firms, the cannabis industry’s struggles to stay open are mounting. As a result, there are groundswells of support from Congress to help legal cannabis companies.
One plan getting traction is to grant companies access to traditional banking channels that are now closed to them because cannabis sales are still a criminal enterprise, as far as the federal government is concerned. That has forced many cannabis firms to deal only in cash.
However, U.S. House Democrats recently passed a $3 trillion Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, which included provisions that make it possible for cannabis companies to get loans and access traditional banking services. Democrats added wording to the HEROES Act from the proposed Secure and Fair Enforcement (SAFE) Act, which would grant cannabis firms access to the traditional U.S. banking system.
The SAFE Act passed the House last September, but has since been held up in the Republican-controlled Senate and has not become law. But Section 110606 of the HEROES Act, entitled “SAFE Banking,” states that banks and other financial services firms would be able to serve cannabis companies and would be “held liable” by federal laws on transactions or proceeds across deposits, checking and lending.
With a nod toward the cash component of the industry, it’s interesting to see that the proposed legislation also states that “the purpose of this [legislation] is to increase public safety by ensuring access to financial services to cannabis-related legitimate businesses and service providers and reducing the amount of cash at such businesses.”
In a letter signed by 34 state attorneys general and addressed to Senate and House congressional leadership, AGs contended that “the COVID-19 pandemic has sharply focused the need for legislative relief in three key respects” with respect to legal weed.
They noted that collecting tax revenue would become more efficient for state and local governments, and added that threats to public safety have increased with cash-intensive business models that are “often the target of criminal activity.”
The AGs also wrote that “the presence of large cash transactions places law enforcement, tax regulators, consumers and patients at heightened risk of exposure to the virus.”
While the HEROES Act has passed the Democratic-controlled House, its fate remains uncertain in the Republican-majority Senate. Senate Majority Leader Mitch McConnell (R-Ky.) called the measure a list of “pet priorities,” saying: “I don’t think we have yet felt the urgency of acting immediately.”