UPDATE: Please see here for important updates to WSLCB policies.
COVID-19 created a state of emergency in the United States and around the world. Compounding the medical emergency is the economic one as the company faces a possible economic contraction not seen since the Great Depression; whole populations are being directed not to travel, restaurants and bars have been ordered to shut down, and whole industries are coming to a standstill.
In Washington and Oregon, many customer-facing businesses have been directed to shut down in an attempt to contain the virus. However, marijuana retail stores are being allowed to continue to be open to the public, provided they take adequate precautions. Curbside delivery is being allowed outside of stores, a first in Washington (though this is limited to medical marijuana patients). And finally, the U.S. Small Business Administration (“SBA”) is now providing disaster assistance in the form of low-interest loans to qualifying small businesses. Marijuana businesses should be advised that they will almost certainly not qualify for these loans. Importantly, hemp businesses might qualify.
Curbside & Home Delivery
Under normal circumstances, Washington prohibits the delivery of marijuana from retail stores to customers, including patients. Registered medical marijuana patients still have to go to a retail store like anyone else, though they are eligible to grow up to four of their own plants and participate in cooperatives. All retail marijuana sales must be done within a retail store.
However, last week the Washington State Liquor and Cannabis Board (“WSLCB”) stated that marijuana retailers will be temporarily allowed to sell to qualifying patients or their designated providers outside of the retailer’s business but “within the licensed property line.” Though the heading of the paragraph of the WSLCB’s guidance is “curbside service,” with the intention “to promote social distancing for qualified patients,” there does not appear to be further restrictions as to whether patients can (or must) be in a car, whether cash can be exchanged outside, or how closely the WSLCB will be monitoring these activities. The WSLCB stated that drive-through windows remain prohibited, and that the patients or designated providers must be registered with the Washington Department of Health. It is worth noting that the WSLCB has allowed greater flexibility with alcohol businesses.
Oregon is much less restrictive than Washington, and has previously allowed for home delivery. On March 22nd, the Oregon Liquor Control Commission (“OLCC”) issued emergency rules permitting curbside delivery for marijuana retailers. Oregon retailers not licensed for home delivery may remain open for business provided that they (1) designate an employee or officer to establish, implement, and enforce social distancing policies consistent with recent guidance from the Oregon Health Authority and Governor Kate Brown’s Executive Order 20-12 and (2) deliver marijuana products outside of the store and within one hundred and fifty (150) feet of the retailer’s licensed premises. The full guidance from the OLCC is located here. Retailers are not obligated to provide on-site delivery and should take steps to ensure employee safety. The OLCC recommends ensuring deliveries are within view of security cameras. In order take advantage of on-site deliveries, retailers must first take the customer’s order and include the following:
- Recipient’s name and date of birth;
- The date of requested delivery;
- A document describing the marijuana items proposed for delivery and the amounts; and
- Check the recipient’s documentation to verify the purchaser meets the relevant age requirement.
On-site delivery items do not require a printed manifest and should be entered into METRC the same way they do with an in-store sale.
SBA Loans – No on THC, Yes on Hemp
COVID-19 was officially made a “declared disaster” by the SBA recently in both Washington and Oregon. One thing this means for small businesses and private non-profits is that they may be eligible for up to $2 million in low-interest loans at interest rates of 3.75% for small businesses and 2.75% for private non-profits. However, the SBA’s current policy (effective April 3, 2018) is that “businesses engaged in any activity that is illegal under federal, state or local law are ineligible for SBA financial assistance.” Since marijuana (containing more than 0.3% tetrahydrocannabinol [“THC”]) is still a controlled substance under the Controlled Substances Act, businesses producing or selling marijuana will be considered engaging in illegal activity, and will be ineligible to receive any relief from the SBA regardless of medical and economic disaster. This includes “indirect marijuana businesses” that derived any of its gross revenue from sales to “direct marijuana businesses.” Examples of indirect marijuana businesses include testing laboratories, grow lighting businesses, hydroponic or other specialized equipment businesses, and even legal and accounting services.
That policy was updated on February 15, 2019, following the legalization of hemp in the Agriculture Improvement Act of 2018, to clarify that hemp businesses are eligible for SBA loans. So while THC-containing marijuana companies cannot expect federal relief, hemp companies desiring assistance may want to explore this. The full policy is available here (see pp. 108-109).
Families First Coronavirus Response Act
Last week President Trump signed the Families First Coronavirus Response Act (“FFCRA”). The FFCRA requires some employers to pay specified employee sick leave and partially pay specified family medical leave related to COVID-19. Marijuana companies should determine if the FFCRA requires them to cover paid sick or family and medical leave for their employees.
In order to minimize the burden on employers, Congress enacted refundable payroll tax credits. The Internal Revenue Service (“IRS”) is still working out the details and a redesigned payroll tax form. However, marijuana businesses subject to section 280E of the Internal Revenue Code should proceed with caution. The plain language of section 280E states “no deduction or credit shall be allowed for any amount paid or incurred during the year” (emphasis added). It seems unlikely that Congress or the IRS will extend payroll tax credit benefits to marijuana businesses. However, hemp and other ancillary businesses not subject to section 280E are unlikely to face a similar fate.