Purchasing legal marijuana at a dispensary

During the COVID-19 Pandemic, Cannabis Industry Must Look to States for Support

Cannabis businesses have been excluded from any national legislated business support program, including the major stimulus package approved March - despite an industry appeal to authorities to put aside restrictions on federal aid and allow industry workers and businesses to apply for federal assistance. However, cannabis cultivators, processors, and retailers should have access to the same relief as other businesses in the states where they are based. Industry-wide Issues Conducting business in the COVID-19 environment and emerging from the crisis alive and well requires cannabis businesses of all types to be aware of and attend to key financial management issues:
  • Cash management. As COVID-19 disrupts business as usual, companies will need to pay particular attention to cash management. Access to capital will be even more difficult for industry firms in the coming months, perhaps even years. The impact on collections is unclear, so it is imperative to assess your cash position, including as to what it means to the makeup of your workforce. If you have a banking relationship, you should meet with your banker to discuss your immediate and long-term capital needs. Many institutions are not lending cannabis businesses working capital; if your working capital is coming from cash flow you will need to make sure you can support your projections without your bank as a safety net. If you have a line of credit, it might be time to take draws to ensure you have sufficient working capital to get you through at least the next three to four months.
  • M&A. With the environment growing more challenging, we are likely to see an increase in the number of mergers and acquisitions. On one hand, the crisis might serve to reduce some of the unrealistic pricing for businesses in our markets; it could make acquisitions more attractive. On the other hand, a slower economy could force additional bankruptcies.
  • Accounting. In any time of income peaks and valleys, the timeliness of accounting information is important. If you have to wait to understand where you are until you close your books a month or more down the road, it could be too late to react to your financial needs. Cash will be tight coming out of the crisis, and most of the support programs will be first-come-first-served, so take the opportunity now to tighten your accounting practices so you can present credible financial statements when you need to apply for any available loans or other support. The better prepared you are, the easier it will be to get necessary and immediate assistance.
  • Sanitation. In light of the current virus crisis, you must ensure that you have procedures in place that protect your crop as well as adhere to the directives of the CDC. If a worker tests positive for the virus, an entire season’s crop could be lost. As well, check your inventory of supplies. It could be increasingly difficult to acquire the clothing, masks and gloves you need to harvest your product safely.
  • Taxes. The federal tax filing extension and payment deferral periods are available to industrial businesses and their owners and operators. The deadline for both relative to 2019 income has been moved to July 15, 2020.
  • FMLA. As our businesses withhold and submit payroll taxes, the provisions of the Family and Medical Leave Act continue to apply.
  State-by-State Rules and Programs The HBK Cannabis Industry Group has compiled information from industry states on operations and programs specific to the COVID-19 crisis.
  • Oregon. Marijuana businesses and liquor stores can remain open for business as long as they comply with Executive Order 20-12. Effective immediately, marijuana and liquor businesses must designate an employee or officer to establish, implement, and enforce social distancing policies consistent with guidance from the Oregon Health Authority. Retailers are not mandated but currently allowed to deliver on-site within certain parameters, essentially curbside pick-up. A temporary rule increases the amount of flower OMMP cardholders and caregivers can purchase to 24 ounces per day but no more than 32 ounces per month.
  • Illinois. Both medical and adult-use are considered essential under Illinois’ COVID-related executive order. Industry businesses must adhere to social distancing and other requirements applicable to all businesses. The state has granted a variance for curbside pick-up to medical patients under certain conditions but not to adult-use purchasers.
  • Missouri. The state is currently in the process of establishing its medical marijuana program. Expectations are for dispensaries to open this summer and the state has announced there will be no delays to the program as a result of COVID-19.
  • Ohio. The governor’s stay-at-home order designates medical marijuana dispensaries healthcare and public health operations. As a result, they are permitted to stay open and patients are permitted to leave their homes to seek medical treatment at the dispensaries. The number of caregivers a patient can have at any time has been expanded to three. In addition, telephone orders for cannabis products are temporarily permitted. Cultivators, processors and labs are considered essential businesses. Social distancing and increased sanitation requirements apply to all businesses.
  • Michigan. The governor’s stay-at-home order allows marijuana businesses to stay open as essential businesses. The state allows home delivery in compliance with certain guidelines. The state is encouraging provisioning centers and adult-use retailers to use home delivery when applicable. They have also expedited an approval process for delivery with 24 to 48 hours and will allow delivery to medical patients whose address is now different from that on their medical card. Michigan will temporarily allow curbside pick-up in compliance with certain parameters.
  • Pennsylvania. The governor has temporarily suspended regulations that require all dispensing to occur inside a dispensary. Pennsylvania will temporarily allow curbside pick-up at dispensaries. It also permits approved caregivers to deliver medical marijuana to an unlimited number of patients.
  • New Jersey. Medical dispensaries are considered an essential business and allowed to remain open. Curbside delivery is allowed.
  • New York. Medical dispensaries are considered an essential business and can remain open. New York will also allow for the expansion of delivery services without government approval, as well as sales through doors and windows at a dispensary as long as they comply with all other laws.
  • Maryland. Medical dispensaries are considered an essential business and allowed to remain open. Under Maryland’s temporarily modified rules, dispensaries may deliver products to patients in their cars, outside of the licensed premises. Maryland officials have also suspended current sales practices that involve communal gathering and the use of shared “sniff jars” to encourage social distancing and reduce infections.
  • Massachusetts. The state has deemed medical cannabis essential. Adult-use retailers have been deemed non-essential and were forced to close March 24th at noon.
  • Florida. Medical dispensaries remain open as of March 24th. The state health department is now allowing existing Florida medical marijuana patients to re-certify their recommendations without having to physically see a doctor. It can be done via telemedicine.
About the Author(s)

Christopher Marrie is a Principal in the Naples, Florida office of HBK CPAs & Consultants and has extensive experience working with clients in all facets of the cannabis industry.

Nick Odille is a Principal in the Youngstown, Ohio office of HBK CPAs & Consultants and provides tax and assurance services to a wide range of clients operating in the cannabis industry.

Stacey Udell is Director of Valuation and Litigation Services for HBK’s Mid-Atlantic Region and has valued cannabis-related entities for multiple purposes to help clients maximize the value of their firms. Ms. Udell has spoken at national conferences and written several articles on the subject of cannabis. She also co-authored the Cannabis Industry Accounting and Appraisal Guide.

Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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