Home Business The COVID-19 Bailout and Its Possible Impact on Cannabis

The COVID-19 Bailout and Its Possible Impact on Cannabis

by Andrew Ward

person in cannabis field

Due to the legal status of cannabis, its burgeoning, billion-dollar industry is unlikely to receive much support from the COVID-19 pandemic stimulus packages. 

Some in the industry may see relief, but in most cases, ventures will be left to their own devices as these uncertain times play out. 

Before diving into why that’s the case, it’s best to step back and understand the impact the virus has had so far. 

After cannabis was deemed an essential need in many places, activity indicated the industry may not require a bailout like many others. Examples of positive market activity included temporary shifts in state regulations to safely serve customers and record sales spurred on by quarantine and stay-at-home orders enacted across various states. 

Since then, historic sales have seen a steep downturn as well-supplied consumers and recreational shoppers in most states stay home with their products. Meanwhile, at least some state-level markets have experienced crippled supply chains due to pandemic shutdowns.

While the distinguishing of cannabis as an essential service brings a new layer of optimism to the industry, the challenges of the pandemic also reveal some of the cannabis industry’s greatest weaknesses or hurdles. 

Andy Seeger, cannabis research manager for market intelligence firm Brightfield Group, said the essential status is helpful for firms and sales. However, there is a downside that only applies to the American cannabis space due to its federally illegal status, he noted. “Protection and support of the workers lags behind in an industry that still must pay many workers in cash,” Seeger added.

With workers and businesses unlikely to receive much, if any, protections, the market faces an uncertain path. 

Why Most Cannabis Ventures Won’t Receive Support

Because cannabis remains classified as a Schedule I narcotic, the industry is ineligible for any federal government support. While exceptions may apply on the state level, cannabis is largely left out of any bailouts during this trying time. 

Despite the industry’s pleading, the Small Business Administration (SBA) stated that cannabis is not up for consideration in the small business bailouts. The SBA cited the plant’s illegal federal status for its exclusion.

The only exceptions made will be for hemp operations that fall under the 2018 Farm Bill.  

In his article for Motley Fool, Sean Williams described the situation as a difficult time for cannabis, with COVID-19 only adding to the ongoing bear market. Williams wrote, “While it is possible that state and local relief options might be available for pot companies that have been adversely impacted by the coronavirus, the general consensus is that the federal government is kicking the cannabis industry while it’s already down.”

That said, the developments continue to unfold. By early April, eleven Senators had joined the chorus of support, advocating that the SBA include the cannabis industry in the bailout. 

Other than the federal government, cannabis ventures may find support on the state level or through a credit union, according to regulatory and government investigations Attorney Braden Perry. The Kansas City-based legal professional and former federal enforcement agency attorney told Green Flower, “Marijuana companies that need assistance would need to inquire with their state to see if non-federal funding would be available or discuss funding options with a local bank or credit union.” 

Perry said a strong compliance background and transparency are fundamental when working with banks and credit unions. “Independent compliance audits of the company either by a third party or someone not actively involved in your compliance management system will add the trust the bank or credit union has with the company.”

One Dispensary’s Perspective

Despite many cannabis companies being considered an essential business, they’ve not felt that way when seeking assistance. Carson Shipley, media coordinator for Seattle’s (Lux) Pot Shop, described the contrast in perspectives. Shipley told Green Flower that the business is “recognized as being essential to American citizens, yet not to the federal government.”

The media professional said that while the ordeal is a setback, it is another substantial hurdle for the shop. “This is nothing new for us,” Shipley added. “We already pay the highest tax any industry has ever been burdened with – 47% in Seattle – and cannot deduct taxes for any reason.”

Citing its essential status, Shipley believes that the industry must further pursue legalization after the current situation settles. If successful, cannabis could avoid uncertain bailout predicaments if and when another crisis should ever arise. 

For now, (Lux) and other cannabis companies wait for clarity on the matter. Shipley reported that the shop is grateful for being an essential business. Citing positive gains for the store and state revenue, Shipley forecasted, “If they decided to close the shops for now, the state would see the unregulated cannabis market begin to thrive again.”

An Optimistic Stance

At this time, the federal government appears poised to carry on its bailout without including the cannabis space, save for hemp companies. While this prospect could change, some speculate that positive market movement in the light of COVID-19 may result in the market not needing assistance. 

Michael Sassano, founder and CEO of Las Vegas cannabis cultivators Solaris Farms, is one person to speculate such an outcome. Sassano said, “With all the attention to speeding medicine approvals and large amounts being spent by governments around the world on medical/pharma improvements, cannabis companies are poised for a positive future and may not even need this federal relief.” 

The cultivation exec added, “As the fastest growing industry, we can help to lead the way toward economic recovery.”

Regardless of if the market will need the bailout or not, most respondents agree that further reform is required. Doing so will ensure cannabis won’t find itself in this predicament going forward. 

Brightfield Group’s Seeger elaborated on how cannabis can further cement itself as an essential element in the American market. Seeger said, “In a cruel twist of fate, this health crisis presents an opportunity for cannabis to mature into an indispensable industry capable of protecting workers, consumers, and patients while driving revenue growth.”

The industry may feel ambivalent at the moment, encouraged by its essential status while likely reeling from its current exclusion from the bailout. Yet, the actions of the cannabis industry during COVID-19 could prove essential in turning the corner on reform. 

However, for now, many players in the market could face difficult months or years ahead. That said, many still cling to hope. People still need cannabis during difficult times, which gives operators a chance to not only survive, but thrive in this new era of uncertainty.  

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