Government Lending For Cannabis Operators, Will Funding Get Extended?

The COVID-19 crisis has led to an unprecedented economic shock that has hit the foundation of the American economy the hardest, small businesses. In most states, only “essential businesses” are able to operate at this time leaving others shuttered and without much cash flow. Most people earn a paycheck from small business owners in this country, and over two-thirds of the United States economy is from consumer demand (the cash in Americans’ pockets). When people say that small business is the ‘backbone’ of the American economy, they are correct in a very literal and quantifiably justifiable sense. Unfortunately, for a new thriving industry composed primarily of small businesses, the type of direct aid granted to most companies is not available. Though this seems counterproductive to the intent of government stimulus efforts and the ideological underpinnings of them, we are just the messenger. We are here to clear up whether cannabis companies are currently eligible for state or federal aid and what the chances are shaping up for cannabis to be included in federal and state assistance in the future.

What Aid Has Been Given by Uncle Sam So Far?

Firstly, let us help distinguish the types of support your tax dollars have bought you. There are two different categories. By far, it seems the most significant and effective support has been conducted by the politically independent Federal Reserve, which does so via monetary policy (though the definitions of such and demarcations of traditional activities seem to be evolving). Luckily, the type of broad-stroked, macro-economic policy tools the Federal Reserve uses is like lifting the level of a pool rather than handing out individual life rafts to swimmers. If you’re swimming in the pool (or are part of the US economy as cannabis businesses are in reality despite efforts to ostracize them by misguided Federal policy), you will be lifted. In this sense, cannabis businesses and all Americans generally have benefited from the quick and decisive action taken to necessarily provide a giant ‘put option’ on the market by largely preventing the prospect of the disorderly insolvency of large US companies that could cause unprecedented economic devastation and elevated unemployment for a decade or more to come. The other side of Uncle Sam’s assistance is under the umbrella of fiscal assistance, the kind that comes from Congress and is spelled out by federal law. The kind that most companies are on hold with Bank of America to try to obtain. This is the direct life-rafts for companies in our ‘pool,’ or economy. The federal relief here is where cannabis operators have been directly excluded, leaving them to rely on the life-raft of their management and strength of their balance sheets. Cannabis operators aren’t alone, many legal businesses are excluded as well through no fault of federal drug prohibition. The two primary life-rafts that Congress has thrown small businesses is the Paycheck Protection Program (PPP), and an expansion of an existing SBA loan fund called Economic Injury Disaster Loan (EIDL) to assist enterprises to whose revenue has been interrupted by government-mandated shutdowns. This type of loan is usually provided to businesses in areas acutely affected by natural disasters like tornadoes, hurricanes, or wildfires.

 The legal cannabis industry appears to have become an unlikely pawn over a much more significant political battle between red states and blue states, what benefits they get from and give to the federal government and what kind values should underpin government stimulus efforts. It seems that the legal cannabis industry is on the winning side of what will likely be a broader effort to modernize the funding of state coffers, reduce and diversify existing obligations like pensions or provide better funding for them with revenue sources like taxes on legal marijuana. Some of the most important political questions of our generation have become indelibly linked with the future of legitimate businesses like medical marijuana dispensaries. The majority of Americans support the legal cannabis industry and largely disapprove of continued Federal efforts to prosecute the failed ‘War on Drugs.’ By every measure of stated Federal Policy, the Federal Government has been unable to either limit the supply or the demand for illegal drugs in the United States. The continued obstruction of the blossoming industry via antiquated Federal policy seems counterproductive to everyone’s stated goals. Undue and economically unjustified regulatory obstacles to growing businesses employing hundreds of thousands of citizens that are complying with state law seem to lack any ideological justification except for recalcitrant administrative efforts for self-preservation of a bloated and inefficient prison industrial complex. Tellingly, both competing economic ideologies that underly the respective political parties policy approaches seem to directly conflict with the idea of holding back businesses that are paying a lot of taxes and employing hundreds of thousands of American citizens, who then pay state and Federal taxes with their incomes. Here is where the inherent contradiction of Federal policy is running up against itself; the tax revenues collected by state governments and indirectly by the Federal government through income taxes would be higher if it weren’t for the obtrusive policies that artificially hinder the growth of the marijuana industry. This doesn’t even take into account the massive loss of production caused by detrimental incarceration policies. Again, that both sides of the ideological spectrum in American politics now seem to oppose.  

The bottom line is this, while both ‘indirect cannabis businesses’ and ‘direct cannabis businesses’ are banned from currently receiving aid from Coronavirus pandemic relief packages, there are very positive signs for future rounds of aid.. States and localities are looking at a situation that made the lost revenues during the 2008 Financial Crisis look like a booming period that we now all greatly envy. The prescient narrative behind recent efforts to deschedule marijuana and prevent the federal agency Small Business Administration (SBA) from restricting SBA loan programs loans and other financial services from cannabis businesses, direct or indirect, has been a realization of the utility the nascent industry has to states that are trying to diversify revenue sources in a period of unprecedented risk.Despite Senate Leader Mitch McConnel attempting to use the issue as fodder for our current era of political polarization, a group of 34 bipartisan Attorneys General have sent a letter stating the enormous economic benefits that the legal cannabis industry is providing and makes a practical case for including the Democrats proposed banking reforms in the next round of government stimulus. The divide here is telling, Attorneys General are more concerned with governance and solving looming budgetary problems Regardless of how this election turns out, governance will become more important. 

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