Cannabis Business in the Wake of COVID-19

As the COVID-19 pandemic continues to impact individuals and businesses throughout the world, cannabis businesses in the United States once again find themselves confronting their own set of unique challenges. On the one hand, many State and local jurisdictions throughout the country have designated cannabis businesses as “essential businesses” that are permitted to continue to operate and serve customers during the crisis. On the other, their continued status as illegal business under Federal law severely impacts their ability to take advantage of stimulus programs developed by the U.S. government to assist businesses impacted by the pandemic.

Operating as an Essential Business

Governors from across the nation, including California, Colorado, Illinois, and Massachusetts, among many others, have all made varying declarations that cannabis businesses, particularly those that dispense medical cannabis and their suppliers, are essential business that can stay open during pending shelter-in-place orders that are designed to slow the spread of COVID-19. The ability to remain open and serve customers is good news for the nascent industry, which has had more than its share of struggles over the last 12-months as the first wave of investment capital receded leaving a string of highly publicized collapses of some of the biggest names in the space. Indeed, the ability to stay open, when so many businesses were forced to close, resulted in a significant increase in sales as a result of customers hoping to stockpile consumable goods in the wake of the crisis. However, remaining open for business is not without its challenges.

Generally, businesses that provide health care supplies and services, infrastructure support, emergency services, mailing and shipping services, media services and necessary consumable goods, particularly if they deliver, are all considered “essential businesses”.  While essential businesses can remain in operation, they must do so while employing strict health and safety standards that include increased sanitation and social distancing requirements. For example, the California Bureau of Cannabis Control issued a press release stating that cannabis businesses can remain open during the statewide shutdown on the condition that they implement the measures detailed in the Center For Disease Control’s Interim Guidance for Businesses and Employers to Plan and Respond to Coronavirus Disease.  Moreover, California cannabis businesses must also comply with local rules and regulations that can place additional restrictions and requirements on cannabis business operators. With additional shelter-in-place orders being issued daily, cannabis businesses, particularly retail operators are well-advised to adopt the CDC’s workplace guidelines at a minimum. These include:

• Increasing ventilation rate and percentage of outdoor air that circulates into the system.
• Providing easy access to no-touch disposal receptables and sanitary supplies including tissues, disposable wipes, and soap and water or hand sanitizer consisting of at least 60% alcohol when soap and water is not readily available
• Placing posters that encourage employees and the public to practice social distancing, good hand hygiene and other common-sense measures such as avoiding touching their faces and covering their mouth and nose with a tissue or the inside of their elbow when sneezing or coughing
• Discouraging handshaking and other direct physical contact
• Routinely clean and disinfect all frequently touched surfaces and discourage employees from using each other’s phones, desks, offices, and tools and equipment.
• Instructing employees who have symptoms (i.e. fever, cough, or shortness of breath) to notify their supervisors and stay home until cleared by a doctor.
• Where an employee is confirmed to have COVID-19, follow the CDC cleaning and disinfecting recommendations for the workplace. Employers should inform fellow employees of possible exposure in the workplace but should maintain confidentiality in order to comply with the ADA.
• Instructing employees and customers to practice social distancing when possible by avoiding clustering and maintaining a 6’ distance from others.
• Instructing employees who absolutely must travel to monitor their health for symptoms and to practice good hygiene and social distancing.
• Utilize video or teleconferencing when possible for work-related meetings or, when not possible, hold meetings in open well-ventilated spaces.

Many jurisdictions have placed additional restrictions and requirements on cannabis businesses that take into account common practices within the industry, which include identity and age verification and the use of cash as a result of the lack of access to banking. Specific operational requirements may include:

• Using separate entry and exit points where possible
• Using security personnel to ensure lines begin at least 6 feet from the entrance and that any lines that form adhere to the distancing requirement
• Restricting the number of customers allowed in the sales area to provide adequate space for distancing
• Providing hand sanitizer to all costumers at entries and point of sale stations
• Employees handling IDs and payment washing hands or sanitizing hands after each transaction
• Prohibiting customers from touching display cases or handling or smelling goods they are not going to purchase
• Encouraging home delivery or curb-side sales whenever possible
• Closing smoking or vaping lounges

Financial Relief

While the cannabis industry has experienced a significant uptick in sales amid the COVID-19 outbreak, sales figures are likely to decline as the rush to stockpile subsides leaving companies to deal with vastly increased operating costs and an economy that many believe is on the verge of recession. This is a bitter pill to swallow for an industry that has been hampered by inordinately high taxes and regulatory costs while competing with the well-entrenched black market, which is able to sell cannabis at a fraction of the price as the regulated businesses.

Compounding industry woes is the lack of access to federal relief promised to small businesses through recent legislation and the U.S. Small Business Administration due to ongoing Federal prohibition.  Cannabis businesses can find a glimmer of hope in an emergency declaration that allows all individuals and businesses to delay filing tax returns and to defer federal income tax payments due on April 15, 2020 to July 15, 2020, without penalty or interest. Many states have also provided emergency relief from filing and payment deadlines, some for as long as three months (see California tax extensions here  and here). Companies should research the type of relief available and the steps necessary to obtain tax relief in their particular state. While SBA loans are generally not available for cannabis companies, states with legal cannabis industries may offer financial assistance through their state run programs (see California Governor’s Office of Business and Economic Development response to COVID-19 here).

Cannabis companies, like all businesses, should be exploring whether they have insurance coverage that can mitigate losses incurred as a result of the epidemic. The following types of insurance policies may provide relief: property, general liability, workers’ compensation and employers liability, environmental or pollution, event cancellation, and mitigation and loss prevention. Other types of policies may also come into play depending on specific circumstances including D&O, E&O and employment practices liability. Companies are encouraged to speak with both their insurance brokers as well as legal counsel to determine whether an insurance policy may provide coverage for losses stemming from COVID-19.