Hemp Business Relief – First Come First Served
Apply Staring “Now” “Until” June 30, 2020 or the Funds Run Out.
Paycheck Protection Program, Sec. 7(a) Loans for the Cannabis Industry?
This email is for informational purposes only.
One week ago, Congress passed the Coronavirus Aid, Relief and Economic Security Act, or CARES Act to provide $2.2 trillion in relief for American families, hospitals and businesses. From the USPTO to the SBA to the FDA, federal agencies are working with the cannabis industries because of COVID-19.
THE PURPOSE OF THIS BLOG IS TO PROVIDE YOU INFORMATION THAT MIGHT HELP YOU OBTAIN A PAYCHECK PROTECTION PROGRAM, SEC. 7(A) LOAN (PPP). PPP provides relatively straightforward COVID-19 relief. We would like all employers who need relief and qualify for relief to obtain that relief. The PPP process may be straightforward (depending on your bank). Some of you will be eligible for loans and a significant portion of the loan may be forgiven.
Foremost, read the following
- SBA’s Guidance on Providing SBA Assistance to Marijuana-Related Businesses
- SBA SOP 50 10
- 13 CFR § 120.110 (h)
“Consistent with the Agriculture Improvement Act of 2018 (Public Law No. 115-334), a business that grows, produces, processes, distributes or sells products made from hemp (as defined in section 297A of the Agricultural Marketing Act of 1946) is eligible.”
“Because federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity. Therefore, businesses that derive revenue from marijuana-related activities or that support the end-use of marijuana may be ineligible for SBA financial assistance.”
“Direct Marijuana Business — a business that grows, produces, processes, distributes, or sells marijuana or marijuana products, edibles, or derivatives, regardless of the amount of such activity. This applies to recreational use and medical use even if the business is legal under local or state law where the applicant business is or will be located . . [is ineligible].”
“Indirect Marijuana Businesses” include organizations that do the following: “Advise or counsel Direct Marijuana Businesses on the specific legal, financial/accounting, policy, regulatory or other operational issues specifically associated with establishing, promoting, or operating a Direct Marijuana Business.”
Who or what constitutes the borrower may also be a complex issue depending on your ownership structure, factors ranging from venture capital investors to the number of investors or owners with interests in a direct or indirect marijuana business. A “borrower’s” eligibility will be evaluated along with its affiliates for purposes of determining eligibility for the PPP loan. Under the SBA’s rules, see link above, entities may be considered affiliates based on factors including stock ownership and management role.
In addition, the PPP application requires you to certify that, “The Applicant is not engaged in any activity that is illegal under federal, state or local law.”
Please contact us or another tax-legal professional if you have any questions about the SBA’s certification requirements or any legal issues related to obtaining this loan such as determining eligibility, determining ownership, use of proceeds (allowable, refundable, other uses, commingling of proceeds with other funds), loan forgiveness and interplay with other SBA relief.
Step 1: UNDERSTAND YOUR RIGHTS AND THE LOAN PROGRAM
Please review this information:
- Paycheck Protection Program
- Interim Final Rule
- The Standard SBA Application
- Congress Person, U.S. Congress Person, Joe Neguse’s, helpful guidance, COVID-19 Small Business Resources
- “AICPA-led coalition supports gross pay approach as calculation standard for PPP loans”
- “Paycheck Protection Program Loans: Three Things The SBA And Banks Need To Agree On Now”
- “SBA Loans Under PPP: Please Don’t Require VC-Backed Startups to Amend Their Charters”
Who is eligible and how you use the money are not simple issues, particularly if you are using multiple sources of SBA relief.
Step 2: CONTACT YOUR BANK
Contact Your Bank to let it know you are interested in a Payroll Protection Program, Sec. 7(A), loan.
Step 3: ORGANIZE DOCUMENTS
Organize Documents related to what you have paid to your employees pursuant to the time periods in the application. If you were in business last year, the 2019 information is probably easier to organize.
- A. 2019 Payroll – Including the last 12 months of payroll.
- B. Healthcare Costs – Insurance Premiums paid by the business owner under a Group Plan.
- C. Retirement Plans – Your company retirement plan costs paid by the business owner.
Many “payroll companies” will do many of these tasks for you, such as ADP. Call your payroll company, if payroll is outsourced.
STEP 4: APPLY!
Step 4 (A): APPLICATION INSTRUCTIONS AND BANK SPECIFIC PROCESSES
Unless your Bank Instructs otherwise, which it might, click here https://www.sba.gov/document. Your bank may set up its own application system. We have contacted various banks and to our surprise all are using different methods to collect the information required for relief and many are requiring different information. The methods include the following:
A. Filling out the forms located on the SBA’s website and emailing them to the bank with supporting documentation.
B. Banks create a portal for their customers to upload the forms.
C. Bank specific automation of the process. See here for a Colorado bank’s portal, 1ST Bank.
Again, unless your bank instructs otherwise, type in “Paycheck Protection Program” or “PPP” into the SBA’s website. The application and instructions are readily accessible. Many of the other documents linked in this email are available for you to review.
Step 4 (B): THE INSTRUCTIONS
You will need to calculate your monthly payroll and the process differs for business owners with employees and independent contractors or sole proprietors.
Instructions are on the form, but a summary follows:
Business Owners with Employees should include the following:
- Salary, wage, commission, or similar compensation.
- Payment of cash tip or equivalent.
- Paid time off – Payments for vacation, parental, family, medical, or sick leave.
- Allowance for dismissal or separation.
- Payment required for the provisions of group health.
- Care benefits, including insurance premiums.
- Payment of any retirement benefit.
- Payment of state or local tax assessed on employee compensation.
Independent Contractors and Sole Proprietors should include the following:
- Net earnings from self-employment, or similar compensation, but not more than $100,000 in 2019 or as pro-rated for the “Covered Period.”
ALL APPLICANTS EXCLUDE THE FOLLOWING
- Any compensation of an employee whose principal place of residence is outside of the United States.
- The portion of compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the “Covered Period.”
- Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees.
- Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).
STEP 5: LOAN AMOUNT
Multiply your Average Monthly Payroll by 2.5. You are eligible for the lesser of (1) the average monthly payroll calculation or (2) $10,000,000.
STEP 6: CONTACT BANK AGAIN, UNLESS THE BANK’S PROCESS IS SELF-EXPLANATORY
STEP 7: USE OF PROCEEDS
You may use the proceeds of the loan for business purposes but the following business purposes again, and part of it may be “forgiven,” i.e. if used for certain purposes the proceeds, then you do not pay them pack.
- Payroll Costs
- Salaries (under $100,000)
- Mortgage Interest Obligations
- Group Health
- Utilities: electricity, gas, water, transportation, phone and internet, among others to be defined
- Certain pre 2/15/2020 debt obligations.
GOOD LUCK TO EVERYONE. STAY SAFE. STAY IN YOUR HOMES. PEACE, LOVE AND RESPECT TO ALL.