Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act at the end of March, providing much-needed financial relief for individuals and businesses affected by the COVID-19 pandemic. Your business might benefit from the CARES Act, but it remains to be seen how your eligibility is affected by participating in the cannabis industry.
Marijuana remains an illegal controlled substance under federal law, but the CARES Act doesn’t address cannabis, specifically. Your best option is to coordinate with your lawyer and accountant to determine how the CARES Act might benefit you.
What is the CARES Act?
The CARES Act is a sweeping stimulus package for individuals and businesses in the U.S. impacted by COVID-19. It involved $2 trillion intended to benefit individuals, large corporations, small businesses, state and local governments, and public health.
About $377 billion of the CARES Act went to relief for small businesses, including:
- Forgivable loans through the Small Business Administration (SBA).
- Emergency grants for small businesses to cover operating expenses.
- Relief for existing SBA loans.
- Employee retention tax credit for employers who suffer a partial or full suspension of business due to the coronavirus.
- A fully refundable tax credit for businesses that hire back or provide paid furlough to employees during the pandemic.
- Ability for employers to delay payment of payroll taxes.
- Modified rules for Alternative Minimum Tax credits.
- Modified rules for businesses’ net operating losses.
- An increase on interest deduction limits imposed by the Tax Cuts and Jobs Act.
Potential Relief for Cannabis Businesses Under the CARES Act
These are types of relief under the CARES Act that might help small cannabis business in California.
SBA & Paycheck Protection Loans
The SBA can provide direct, Economic Injury Disaster Loans based solely on your credit score, and SBA-approved private lenders offer Paycheck Protection Loans (known as 7(a) loans). All or portions of these loans can be forgiven if applied the money to certain costs, like operating expenses and payroll. Loans that aren’t fully forgiven convert to a 10-year fully amortizing loan with 4% interest and a six-month deferment.
The SBA is offering guidance and loan resources based on the COVID-19 pandemic. However, on April 16, the SBA website stated: “SBA is unable to accept new applications at this time for the Paycheck Protection Program or the Economic Injury Disaster Loan (EIDL)-COVID-19 related assistance program (including EIDL Advances) based on available appropriations funding.” Some members of Congress hope to provide more funding.
The big question is whether cannabis businesses will be eligible for paycheck protection or forgivable loans. The answer might unfortunately be “NO,” based on the law prohibiting businesses involved with illegal activity at the federal level from receiving CARES Act funding.
The Employee Retention Credit (ERC)
The ERC isn’t something you apply for – you simply utilize it when filing your taxes. Eligible employers receive a refundable payroll tax credit for 50% of wages and health insurance premiums they pay between March 13, 20202, and December 31, 2020.
Congress provided the credit for the first $10,000 in qualified wages paid to eligible employees. Talk with your attorney and accountant to review what constitutes eligible employers, employees, and qualified wages.
The Employer Payroll Tax Deferral
Businesses can defer the 6.2% Federal Insurance Contributions Act (FICA) payroll tax until 2021. However, it appears you aren’t eligible for this deferral if you received a loan that will be forgiven under the CARES Act.
The Paid Sick Leave/Payroll Tax Credits
If you’re a business with fewer than 500 employees, you’re required to provide up to 80 hours of emergency paid sick leave for employees who can’t work because of COVID-19. You’re eligible for payroll tax credits on what you paid to offset the costs of paid sick leave, and if you have fewer than 50 employees, you might be eligible for a hardship exemption.
Credit for Operating Losses
You can carry back net operating losses from 2018, 2019, and 2020 five years to get a refund, and operating losses from before January 1, 2021, can fully offset your income.
Talk with a Lawyer About the CARES Act for your California Cannabis Business
As a cannabis business owner, you strive to always work within the law. That becomes difficult when your eligibility for relief is based on federal programs rather than California law.