Why Congress Needs To Support Cannabis Companies During the COVID Crisis
The time is ripe for the federal government to pass additional legislation that will cost our taxpayers virtually nothing while opening the door for more job creation and economic growth.
The global outbreak of COVID-19 has undoubtedly disrupted critical business functions in every sector. While the federal government has tried to alleviate economic strain for small businesses by passing the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the measure largely overlooks the financial needs of one of the fastest growing and lucrative industries in the U.S. There is an incredible opportunity right now for Congress and the industry to work together to pass additional legislation that will cost our taxpayers virtually nothing while opening the door for more job creation and economic growth.
Stimulus leaves cannabis and hemp businesses behind
Legal cannabis and hemp businesses (to some extent) have been shut out of receiving direct economic relief during this crisis that has no clear end in sight. This despite the fact that regulated cannabis businesses have generated billions of dollars of tax revenue, jumped through countless regulatory hoops to stay compliant, and have been paying out unemployment benefits under CARES Act guidelines, they receive minimal support compared to mainstream businesses.
Under the Small Business Administration (SBA) regulations, cannabis businesses cannot receive federally backed loans, as “financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity.” As a result, law-abiding cannabis companies are effectively shut out of the Paycheck Protection Program (PPP), Economic Injury Disaster Loan Emergency Advance (EIDL), SBA Express Bridge Loans and SBA Debt Relief programs created under the stimulus bill. This is an untenable situation for an industry that employs more than 300,000 individuals that will face serious financial distress if business and travel restrictions persist.
While hemp recently became federally legal under the 2018 Farm Bill, there are still substantial limitations to the kinds of relief the industry is eligible to receive. SBA loans are generally off-limits to farmers, who are the backbone of the hemp industry. This is largely due to the fact that the U.S. Department of Agriculture (USDA) has historically overseen agricultural loans, crop insurance, and disaster relief programs. Unfortunately, the USDA has not received adequate coronavirus funding during this crisis, leaving farmers without a clear path forward.
Although the EIDL program under the CARES Act promises low-interest loans of up to $2 million to small businesses, the SBA clearly states that the funds are for "non-farm, private sector disaster loans.” Hemp advocacy groups have recently contested this position, and are lobbying the federal government to revise the policy’s language to include agricultural enterprises. Fortunately, hemp’s legal status allows certain businesses to apply for PPP support, which has helped quell the financial burdens of various hemp science and product companies. It is now up to the federal government to rectify this key oversight and provide critical financial assistance to farmers.
Structural reforms needed
Recent nationwide economic challenges have exposed financing limitations in the hemp industry. Mainstream businesses have the privilege of turning to institutional investors for support while they wait for their federal loans to materialize. Hemp businesses, on the other hand, have substantially less access to private equity, venture capital, and institutional money due to the general lack of banking support and regulatory clarity from the Food and Drug Administration (FDA).
Many investors are hesitant to engage with the hemp industry because federal policies still conflate the byproducts of hemp and cannabis businesses, especially in the CBD space. Investors are allowed to fund hemp companies but not CBD companies because CBD is still shrouded in regulatory uncertainty by the FDA. However, many conservative investors are unwilling to risk incurring federal fines or disciplinary measures. As a result, the broader hemp industry continues to struggle to obtain access to banking resources, which also hampers its ability to receive USDA loans and crop insurance assistance. By providing a regulatory pathway for CBD and other hemp-derived cannabinoids to be marketed and sold as dietary supplements, the FDA could open the door for both hemp-derived product businesses and hemp farmers to thrive while keeping consumers safe and generating job growth.
Congress can provide a constructive solution to this industry-wide issue by passing the Secure and Fair Enforcement (SAFE) Banking Act, which would allow financial institutions to provide services in the forms of loans and investments to legal cannabis companies. Passing the SAFE Banking Act would not only impart financial legitimacy to the hemp and cannabis industries, but it would also inject a generous influx of cash and productivity into the economy at a time when the country needs it the most. Hemp and cannabis businesses have worked tirelessly with the federal government to provide safe and high-quality products to consumers over the past decade and it is time for the government to amend existing policies to reflect their innumerable contributions.
Demand is high
While several industries are experiencing a sharp decline in global supply and demand, there is still tremendous growth potential for the hemp industry as demand for cannabinoid-based wellness products, plant-based protein sources, and more sustainable sources for industrial materials continue to grow. There is also significant interest in smokable flower as an alternative to tobacco, and hemp is increasingly embraced by scientists and consumers for its potential wellness and medical applications. Additionally, awareness of new cannabinoids will broaden the scope of the hemp market outside of CBD. Minor cannabinoids like CBG, CBC, and CBN, which have potential applications in the supplement industry and holistic medical field, will create even more product opportunities in the near future.
From the supply perspective, the cost of hemp has already begun to stabilize after last year’s surplus, and considering potential shortages of quality hemp flower due COVID-related planting delays, the industry could see hemp prices rise in the fall. This can be a potentially lucrative future opportunity for farmers that are still able to produce high-quality crops.
The efforts of industry leaders who are working together to provide compelling safety data and updated recommendations to the FDA and USDA will create more regulatory certainty for business owners in this space. The enormous economic impact of The Great Lockdown can be potentially mitigated by the federal government lending their support for American hemp farmers and businesses to continue on their growth trajectory. In addition, the federal government can protect states' rights with respect to regulated cannabis industries without getting bogged down in a dispute over federal cannabis legalization. By passing the SAFE banking act, the government would benefit both hemp and legal cannabis industries while providing an immediate economic boost without spending taxpayer dollars.
While the world faces a myriad of health and economic uncertainties in the next few months, there are still considerable opportunities for new products and growth for both the hemp and regulated cannabis industries. Innovation and science are leading to exciting applications for this ancient plant that has been reborn as a modern-day super crop that can improve human health, create new jobs, and provide a huge economic opportunity for farmers. The industry has a bright future ahead, and by working together with federal legislators and regulatory agencies, there is an opportunity to pave the way for strong growth after the pandemic subsides.
Related: Marijuana And Liquor Sales Rise As Americans Self-Isolate From Coronavirus