From "Cannabis Inc."

Cannabis companies pay federal taxes but are shut out of small business loans

Key Points
  • Several legislators from both parties are pushing for the next round of SBA loans to include the cannabis industry.
  • April 20 (4/20) is traditionally the biggest sales day of the year for the cannabis industry.
  • After seeing strong sales at the start of state shutdown orders, some stores have seen a sales slump.
Different strains of cannabis are displayed for sale at the Harborside dispensary in Oakland, California, U.S., on Monday, March 23, 2020.
David Paul Morris | Bloomberg | Getty Images

April 20 (4/20) is traditionally the biggest sales day of the year for the cannabis industry. But after seeing strong sales at the start of state shutdown orders, some stores have seen a sales slump.

Particularly hard hit are shops in states heavily dependent on tourists, or where only medical marijuana has been deemed essential, not recreational.

Sales in Colorado reportedly fell 21 percent in the second half of March, compared to a year earlier. In Nevada they fell 15 percent.

"Some businesses are running into choppy waters," said Rep. Earl Blumenauer, D-Oregon.

However, these businesses cannot access federal aid because they are illegal in the eyes of the federal government. So Blumenauer and three colleagues from both parties are pushing for the next round of Small Business Administration loans to include the cannabis industry.

"There are a quarter of a million people working in state legal cannabis businesses, they pay almost $2 billion in taxes," he said, adding that the industry actually pays a disproportionate amount in taxes "because the crazy federal government rules don't allow them to deduct all their business expenses."

Steve DeAngelo, co-founder of Harborside in California, a chain of four cannabis stores, said sales in the Golden State remain solid, for now.

"What's happened here in California is many people who are dealing with issues like chronic pain, insomnia, anxiety, depression, acid reflux, a whole range of issues, turn to cannabis as a first line of defense as a wellness product," DeAngelo said.

Customers practice social distancing while waiting in line to purchase products at the Harborside dispensary in Oakland, California, U.S., on Monday, March 23, 2020.
David Paul Morris | Bloomberg | Getty Images

He said states which have not made marijuana "essential" are driving even more sales to the black market during the pandemic, where social distancing and other behaviors encouraged during the shutdowns may be ignored.

There is another worry. In Canada, the bankruptcies have started in cannabis.

But unlike Canada, where marijuana is legal on a federal level, American cannabis companies may not be able to seek federal bankruptcy protection, even as they pay federal taxes.

The tide may be turning in marijuana's favor at the federal level.

Blumenauer said there are four pieces of legislation which have made their way out of committee in Congress dealing with access to banking, research, special help for veterans, and full legalization. He said that even though every business sector in the country is suffering right now and needs aid, it's not fair to cut off an industry recognized as legal in 33 states.

"They have employees that have needs, they contribute to the economy, they pay taxes, they provide essential services," Blumenauer said.

However, DeAngelo isn't sure Blumenauer will succeed.

"I think the chances are stronger that we will receive some banking relief than we will see the SBA dispersing funds to cannabis businesses," he said. "That's because under federal law, cannabis continues to be a Schedule I controlled substance, in the same category as heroin."

As for 4/20 remaining the biggest day of the year, DeAngelo said this year will be different.

"We have spread all of our 4/20 specials out over the month and are doing our best to encourage patients to not all come in at the same time, just to make appropriate social space," he said.

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