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Essential, But Still Illegal: The Cannabis Industry & The COVID-19 Pandemic

JamalEdeen Barghouti May 22, 2020

COVID-19 has dramatically changed every industry in the world including the regulated cannabis industry. Cannabis, now legal in some form in 34 states across the United States, employs hundreds of thousands of Americans and contributes considerable amounts to state tax revenue. Yet cannabis companies are not eligible for any relief from the federal government, even during an unprecedented global pandemic, making the road ahead for the cannabis industry post-pandemic unclear. Today we’re taking a closer look into how the cannabis industry has been impacted by the coronavirus pandemic and how the next COVID-19 relief bill laid out by The U.S. House of Representatives could help. 

Essential, but Still Illegal

In response to the coronavirus pandemic, states across the country put restrictions around businesses through stay-at-home orders to limit the potential community spread of COVID-19. Most of the nation’s stay-at-home orders included closing businesses deemed “non-essential” like most retail shops, hair salons, music venues, bars, and restaurants while keeping “essential” businesses, like grocery stores and pharmacies, open for business. Nationally 27 states that put stay-at-home orders in-place allowed cannabis operations to continue in some form and 23 of those states labeled cannabis as “essential”. 

There are several reasons states decided to keep cannabis businesses open, least of which the millions of people who depend on cannabis to relieve severe medical issues. The move to mark cannabis as an essential business, allowing cannabis businesses to continue to operate illustrates how quickly attitudes around the plant have changed over the last few years. And while more than half of the United States allowed cannabis operations to continue, cannabis remains a schedule I substance under the Controlled Substances Act and is federally illegal.

Essentially Legal

The fact that cannabis remains a Schedule I substance under the Controlled Substances Act is an annoying reality of working in the regulated cannabis industry. It means that products can’t cross state lines, each state has to develop its own closed supply chain, there are heavy restrictions around cannabis advertising, the list goes on. Among the finer details, cannabis companies cannot write off the majority of their business expenses to be tax deductible like most businesses, adding to the high cost of running a cannabis business. One major headache for cannabis business owners and their employees is access to banking.

All national banks are regulated by the federal government. This means that banks cannot engage with money made from illegal activities, or they could face steep fines and/or legal action from a federal regulatory body. As a result, many cannabis businesses and cannabis professionals are underbanked; making it difficult to expand a business or buy a house, among other things. It also makes it difficult to offer payment processing outside of cash, as the federal government also regulates payment processing services like Square or Paypal. In some cases businesses have had their accounts closed and their money seized  after the bank or payment processing partner realized they were connected to cannabis. There have been stories of the same thing happening to cannabis professionals and their personal accounts.

Due to the uncertainties of cannabis and banking, Blackbird, among many others, will remain cash-only until reliable banking becomes more accessible to the cannabis industry. Yet there are additional safety concerns that arise from being a predominantly cash-only business in the time of COVID-19; an increase in transactions means an increase in cash-handling and the potential spread of the coronavirus with it, as well as the liability and safety concerns of handling more cash in a time of economic uncertainty.

All Cash, No Relief

The COVID-19 pandemic has highlighted some of the larger problems of the cannabis industry’s patchy regulatory framework. Like all businesses navigating the pandemic and the ensuing business closures, the last few months have been tumultuous for the cannabis industry. Many retailers saw record sales as folks stocked up on supplies for their isolation at home. At the same time, the decrease in tourism affected sales in states like Nevada where a large portion of cannabis sales come from out-of-state visitors. 

Within the industry there was a shift in labor resulting in a loss of jobs as many cannabis retailers moved to either a curbside pick-up or delivery-only model, requiring less staff on-hand. This sudden and immediate shift in cannabis retail sent ripples through the cannabis supply chain affecting the entire industry. Cannabis organizations of all sizes started to experience furloughs and lay-offs sometimes as high as 30% of their staff

Yet unlike businesses in other industries, cannabis businesses are not eligible for relief from the $2 trillion coronavirus relief package; the bill signed into law by President Donald Trump in March, which included the $1200 stimulus checks for individuals across the country. Cannabis companies cannot apply for loans or grants funded through the relief package from the Small Business Administration (SBA). While companies in other industries are able to use the money from the federal government to cover pay for their furloughed staff or to pay off interest from loans, cannabis companies must continue business-as-usual in a time when things are anything but usual. In the long-run, this will disproportionately impact small businesses run by participants of cannabis social equity programs; programs created specifically to ensure the inclusion of Black and brown communities heavily impacted by cannabis prohibition in the budding multi-billion dollar industry.  

While some states are taking matters into their own hands by deferring renewals and licensing fees to provide any relief they can, the industry as a whole needs more assistance than one state alone can offer. This relief could come in the next COVID-19 relief package our Nation’s leaders are deliberating; the HEROES Act.

SAFE Banking and the HEROES Act

In March of 2019 Representative Ed Perlmutter (D-CO) introduced the Secure And Fair Enforcement Banking Act (SAFE Banking Act) to the U.S. House of Representatives. The bill, which would essentially protect financial institutions working with licensed and regulated cannabis companies from legal action by the Federal Government, passed the House in September 2019 with a 321-103 bipartisan majority including key endorsements from House committee chairs Representatives Nadler and Waters. The SAFE Banking then went on to the Senate for consideration where it has sat ever since.

At the beginning of May, Speaker of the House Nancy Pelosi revealed the next relief bill relating to the COVID-19 pandemic; the Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES Act). To the surprise and relief of many of us in the cannabis industry, this bill (which includes an additional $1200 stimulus package for individuals) includes identical language to the SAFE Banking act. The House passed the HEROES Act on the 15th of May in a 208-199 vote sent it to the Senate for consideration. 

Unfortunately, there has been a lot of pushback from the Republican-controlled Senate who see some inclusions into the HEROES act as an overreach by the Democratic-controlled Congress. Due to the pushback, some Republican Senators have said the HEROES Act is “Dead on Arrival” leaving the future of the SAFE Banking act and other important relief measures uncertain.

The Senate is expected to vote on the HEROES Act after the Senate Recess observing Memorial Day (May 25-29th).

How You Can Help the Cannabis Industry

Since the Senate hasn’t voted on the HEROES Act yet, you can express your concern for the cannabis industry and ask your senator to support the inclusion of the SAFE Banking Act in the consideration of the HEROES Act. 

You have the chance to give back to those who have worked hard throughout this pandemic to continue to provide access to cannabis by making a quick call to your Senators. It takes just a few moments and could make our entire industry safer and give us much-needed access to banking.

The National Cannabis Industry Association provides a tool to find your representative making it easy to voice your support for the industry.

Don’t know what to say? Here’s a script;

“Hello, my name is ______ and I’m a registered voter in _________.  I would like to express my support of the regulated cannabis industry and I urge (Senator) to support the inclusion of the SAFE Banking Act in the next coronavirus relief package (or HEROES Act).”

Overall, this global crisis is far from over and we will continue to see dramatic changes across all industries. The SAFE Banking Act provides a lifeline for cannabis companies, ensuring that they are able to make it through to the other side of the pandemic, but the cannabis industry will continue struggling through complex and often contradicting regulatory framework until cannabis is legalized at the federal level. 

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