Coronavirus Federal Stimulus Bills: Updated Overview and FAQ for Cannabis, Hemp and Ancillary Businesses
Mar 29, 2021
This article is an update to the VS Insights post "Coronavirus Federal Stimulus Bills: Overview and FAQ for Cannabis, Hemp and Ancillary Businesses," originally published in May 2020.
The Federal Government has now adopted five landmark pieces of legislation in response to the coronavirus pandemic (the Federal Stimulus) that provide relief for businesses and individuals, as well as critical protections for workers and assistance to states.
This updated overview and FAQ provides specific guidance to cannabis, hemp and ancillary businesses regarding their ability to access federal assistance and their duties and obligations as employers under the Federal Stimulus. Qualified hemp farmers and hemp businesses should be entitled to the same relief as businesses in other industries. Unfortunately, cannabis businesses and businesses ancillary to cannabis are likely ineligible to participate in federal assistance programs due to the illegality of the production and sale of cannabis under federal law. For example, ancillary businesses, referred to by the Small Business Administration (SBA) as “indirect businesses,” that derive any revenue from sales or services to the cannabis industry are excluded from eligibility. Examples of “indirect businesses” are described below in the FAQ: Federal Stimulus & Cannabis section.
Please note that these federal programs also have implications at the state level, and there may be state and local programs for which your business is eligible. Vicente Sederberg LLP is continuing to analyze these new laws and potential relief for cannabis businesses. Please contact us with specific questions so we can provide more specific information based on individual facts and circumstances.
CONTENTS: Federal Stimulus Overview | FAQ: Federal Stimulus & Cannabis Businesses | FAQ: State Small Business Credit Initiative (SSCBI) and Cannabis Businesses | FAQ: Paycheck Protection Program | FAQ: Expanded Economic Injury Disaster Loan Program | FAQ: Agricultural & Food Programs | FAQ: Employer Obligations, Tax Credits & Unemployment Benefits
H.R. 1319 – American Rescue Plan Act of 2021 (P.L. 117-2) (ARPA)
Provides an additional $7.25 billion for the Paycheck Protection Program.
Also includes State Small Business Credit Initiative, which provides $10 billion in federal funding to states to support small businesses, economically disadvantaged businesses, and micro-businesses.
ARPA reduces some of the requirements for payroll tax credits for employers.
- Extends current unemployment insurance benefits and eligibility to September 6, 2021.
H.R. 133 – Consolidated Appropriations Act 2021 (P.L. 116-260) (Coronavirus Response and Relief Supplemental Appropriations Act, 2021) (CAA)
- Expands the Paycheck Protection Program (PPP) by providing an additional $284 billion for eligible applicants that have not received a PPP loan. Businesses may also apply for a second loan. The act also clarifies the tax treatment of forgiven PPP loans.
H.R. 6074 – Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 (P.L. 116-123) (CPRSA)
Includes provisions relative to the Economic Injury Disaster Loan Program (EIDLP), available through the Small Business Administration (SBA). The EIDLP provides eligible small businesses with working capital loans of up to $2 million in the event of substantial economic injury due to a declared disaster.
CPRSA formally declared the coronavirus pandemic a qualifying disaster for which EIDLP loans may be provided and allocated $20 million to the SBA to support its administration of EIDLP in the wake of the coronavirus emergency.
H.R. 6201 – Families First Coronavirus Response Act (P.L. 116-127) (Families First Act)
Employers with fewer than 500 employees are required to provide two weeks of paid sick leave to employees who are unable to work due to: quarantine or isolation; coronavirus symptoms; or need to care for someone who is in quarantine or isolation and/or individuals who have children in schools that have closed. Employers will receive tax credits to offset the costs of providing paid leave.
Small employers with fewer than 50 employees are exempt from certain paid sick leave and expanded family and medical leave requirements related to school or place of care closures or childcare provider unavailability for COVID-19 related reasons if providing an employee with such leave would jeopardize the viability of the business as a going concern.
- The Families First Act expired on December 31, 2020. As such, employers are no longer required to provide Families First Leave as of January 1, 2021. However, if employers with fewer than 500 employees voluntarily provide leave benefits, they are eligible to take the associated tax credits.
H.R. 748 – Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136) (CARES Act)
Comprehensive $2 trillion stimulus package aimed to course correct the economic downturn caused by the coronavirus, including $350 billion in support for small businesses.
Includes the Paycheck Protection Program, which amends Section 7(a) of the Small Business Act and expands the Economic Injury Disaster Loan Program (EIDLP).1
Provides $10 billion through an Emergency Grant Program, which will allow small businesses, nonprofits and agricultural cooperatives to request an emergency advance loan of up to $10,000 against an EIDL, with no requirement to repay that advance if the EIDL application is denied.2
Provides $9.5 billion to the Department of Agriculture to provide financial support to farmers and ranchers, $14 billion to the Commodity Credit Corporation to support programs to assist agricultural producers, $20.5 million of lending for the United States Department of Agriculture (USDA) Rural Development Business and Industry Loan Guarantee Program, and temporary extensions on repayment of commodity marketing assistance loans.
Are marijuana businesses eligible for SBA loans and other federal programs?
Because the cultivation and sale of marijuana is illegal under federal law, marijuana businesses and ancillary businesses are not eligible to participate in many of these programs. In a March 22, 2020, Twitter post in response to a Washington-based cannabis business owner, SBA confirmed that cannabis businesses are not able to access SBA funded services, including the PPP and EIDL programs, despite the fact that they are equally harmed by the coronavirus pandemic as other law-abiding, tax-paying small business operators.
The SBA revised its lending policies in a 2019 Policy Notice to allow “hemp-related businesses” access to SBA financial assistance. Both “direct” and “indirect” “marijuana-related businesses” remain ineligible to receive SBA loans. The SBA defines these terms as follows:
"Marijuana-Related Business" — 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. Whether a business is eligible is determined by the nature of the business’s specific operations.
“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.
“Indirect Marijuana Business” — A business that derived any of its gross revenue for the previous year (or, if a start-up, projects to derive any of its gross revenue for the next year) from sales to Direct Marijuana Businesses of products or services that could reasonably be determined to aid in the use, growth, enhancement or other development of marijuana. Examples of Indirect Marijuana Businesses include businesses that provide testing services, or sell or install grow lights, hydroponic or other specialized equipment, to one or more Direct Marijuana Businesses; and businesses that advise or counsel Direct Marijuana Businesses on the specific legal, financial/accounting, policy, regulatory or other issues associated with establishing, promoting, or operating a Direct Marijuana Business.
For purposes of illustration, SBA does not consider a plumber who fixes a sink for a Direct Marijuana Business or a tech support company that repairs a laptop for such a business to be aiding in the use, growth, enhancement or other development of marijuana. Indirect Marijuana Businesses also include businesses that sell smoking devices, pipes, bongs, inhalants, or other products if the products are primarily intended or designed for marijuana use or if the business markets the products for such use. 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.
Since many banks will not service the cannabis industry, even Indirect Marijuana Businesses that technically qualify for SBA loans will likely encounter challenges in obtaining SBA funds.
Are there any efforts to secure protections for cannabis businesses?
Several industry trade groups, including the National Cannabis Industry Association, National Cannabis Roundtable, Minority Cannabis Business Association, and the Cannabis Trade Federation, issued a letter to congressional leaders seeking to limit restrictions and allow cannabis businesses to obtain the same relief available to other legitimate industries. The letter called out the inequity to the cannabis industry given its obligations to comply with other Federal Stimulus relating to paid sick leave under the Families First Act. While the desired language did not appear in the bill signed into law on March 27, 2020, numerous U.S. senators expressed public support for making cannabis companies eligible.
On April 8, 2020, industry trade groups sent a separate letter to governors and state treasurers requesting state officials to: (1) encourage congressional delegations to insert language into future COVID-19 legislation that would enable marijuana companies to access SBA relief loans and disaster assistance, and (2) consider creating state-level lending programs for cannabis businesses to help fill the gap created by cannabis business ineligibility for the SBA’s Paycheck Protection Program and Economic Injury Disaster loans.
In addition, a bill was filed in the U.S. House, H.R. 3540, the Ensuring Safe Capital Access for all Small Business Act of 2019, which seeks to remove cannabis from the schedule of controlled substances and prohibit the SBA from declining to provide certain small business loans to an eligible entity solely because it is a “cannabis-related legitimate business”3 or “service provider.”4
Cannabis advocates continue to promote the specific inclusion of the cannabis industry in economic relief legislation at the federal and state level. Vicente Sederberg and VS Strategies are working in coordination with industry stakeholders to include protections for the cannabis industry at both the federal and state level.
UPDATE: On December 4, 2020, the House of Representatives passed the Marijuana Opportunity Reinvestment and Expungement Act (MORE) Act of 2020. This landmark legislation decriminalizes marijuana at the federal level and allows states to implement regulations without the threat of federal intervention. Notably, it also includes provisions that would allow small businesses operating in the cannabis industry to participate in SBA lending programs. The passage of the MORE Act is perhaps the most significant progress to date to ensure that marijuana-related businesses, direct marijuana businesses, and indirect marijuana businesses can access SBA loans. The MORE Act has now been sent to the Senate and referred to the Finance Committee. Additional information regarding federal marijuana policy is available here.
Yes, the SBA clarified that businesses that produce or sell hemp and hemp-derived products that are legal under the 297A of the Agricultural Marketing Act of 1946 (the 2018 Farm Bill) may be eligible for SBA loans.
The recently passed American Rescue Plan Act of 2021 (ARPA) includes a State Small Business Credit Initiative, which provides $10 billion in federal funding to states to support small businesses, economically disadvantaged businesses, and micro-businesses.
Are cannabis businesses eligible for loans through the State Small Business Credit Initiative?
Based on the information available at this time, it is not clear whether cannabis businesses will be able to access loans through SSBCI. As set forth in ARPA, more than $10 billion of federal funding will be provided to the states to support small businesses, economically disadvantaged businesses, and micro-businesses through this program.
The SSBCI was originally enacted in 2010 to strengthen state programs that support the financing of small businesses. States may structure loan participation programs in two ways: 1) by purchasing a portion of a loan originated by a lender or 2) by participating in the loan as a co-lender. State loan participation programs encourage lending to small businesses because the lender can diversify its risk of loss by sharing its exposure to loan losses with the state. Subject to some restrictions, loans can be used for a variety of business purposes, such as start-up costs and working capital. Additional information is available here.
Because SSBCI loans are administered at the state level, cannabis businesses may be able to access loans in states where cannabis has been legalized. Analysis regarding accessibility will vary state by state. If you are considering exploring access to SSBCI funds, please contact your Vicente Sederberg attorney so we can provide more specific information based on individual facts and circumstances.
The recently passed COVID-19 relief package, ARPA, provides an additional $7.25 billion for the Paycheck Protection Program, building upon the prior commitment of l $284.45 billion for loans to small businesses under the PPP through the CAA, and the $350 billion provided through the CARES Act before it. The deadline to apply for a loan is May 31, 2021. Loans will be awarded on a first come first serve basis. If you are considering submitting an application, please contact your Vicente Sederberg attorney so we can provide more specific information based on individual facts and circumstances. If you are considering submitting an application, please contact your Vicente Sederberg attorney so we can provide more specific information based on individual facts and circumstances.
Who qualifies for loans?
The ARPA modified the eligibility criteria for PPP loans, primarily by expanding access to small business owners that were previously excluded from PPP, including non-profit organizations that were previously excluded. Applicants will still be required to show that they satisfy the eligibility criteria set forth below.
The eligibility criteria under the CAA is largely similar to the eligibility criteria under the Cares Act. Businesses with fewer than 500 employees (300 employees for second loan applicants), including non-profit organizations, sole proprietorships, tribal concerns, and veterans’ organizations are eligible to apply for PPP loans. Independent contractors and self-employed individuals are also eligible and are allowed to submit applications.
Businesses with more than one location are eligible for loans if they employ 500 or fewer employees per physical location, have under $500 million in gross revenue, and fall within the “accommodation and food services” sector under the North American Industry Classification System.
For eligible businesses who were unable to receive a PPP loan before the program expired, the CAA set aside $35 billion for first-time applicants and $15 billion for first-time loans to small businesses with no more than 10 employees or small businesses located in distressed areas.
To be eligible for a “second draw,” the borrower must: (1) have spent the full amount of the first loan; (2) employ no more than 300 employees per physical location; and (3) demonstrate a 25% reduction in receipts in a quarter during 2020 as compared to the same quarter in 2019. Second draw loans cannot exceed $2 million. In addition, there is $25 billion set aside for second draw PPP loans to small businesses with no more than 10 employees that are located in distressed areas.
What do loans cover?
The CAA expanded the list of eligible and forgivable expenses. In addition to payroll costs, costs related to the continuation of group health care benefits, employee salaries, mortgage interest, rent, utilities (including electricity, gas, water, transportation, telephone, and internet), the CAA allows loan recipients to use PPP money for personal protective equipment, costs associated with outdoor dining, supplier costs, software and cloud computing services that facilitate business operations, and uninsured property damage costs related to “public disturbances” that occurred in 2020.
Additionally, the CAA now allows group life, disability, vision, and dental insurance to be included in the calculation of payroll costs. The borrower must provide certification that the proceeds of the loan will be used for the foregoing purposes. Loans cannot be used to cover individual employee compensation over $100,000 per year or compensation of an employee whose residence is outside of the United States.
Who provides loans?
Paycheck Protection loans are provided through third party lenders under the 7(a) loan program, as opposed to directly from the SBA.
Is there a limit on loan amounts?
The loan amount is limited to the lesser of $10 million; or 2.5 times the average amount of “payroll costs” in the one-year period before the loan is made. Payroll costs are defined as “the sum of all payments for compensation, including salary, wages, cash tips, paid time off, severance, healthcare benefits, state or local taxes.”
For businesses submitting applications without payroll expenses, the loan amount is based on 2.5 times the average monthly eligible business expenses.
“Second draw” loans can be up to 2.5 times the business's average monthly 2019 or 2020 payroll costs. Hospitality and the food services industry are eligible for up to 3.5 times average monthly payroll costs. There is an overall cap for a “second draw” loan at 2 million.
Are borrowers required to provide collateral?
Neither collateral nor personal guarantees are required.
Is loan forgiveness available?
First draw and second draw PPP loans made to eligible borrowers qualify for full loan forgiveness if during the 8-to 24-week covered period following loan disbursement: (1) employee and compensation levels are maintained; (2) the loan proceeds are spent on payroll costs and other eligible expenses; and (3) at least 60% of the proceeds are spent on payroll costs.
Any principal balance on loans issued prior to June 5, 2020 that does not qualify for forgiveness must be repaid over a two-year period at the fixed interest rate of 1%. Loans issued after June 5, 2020 have a maturity of five years. Loan payments will be deferred for borrowers who apply for loan forgiveness until SBA remits the borrower's loan forgiveness amount to the lender. If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness (either 8 weeks or 24 weeks).
A borrower can apply for forgiveness once all loan proceeds for which the borrower is requesting forgiveness have been used. Borrowers can apply for forgiveness any time up to the maturity date of the loan. If borrowers do not apply for forgiveness within 10 months after the last day of the covered period, then PPP loan payments are no longer deferred, and borrowers will begin making loan payments to their PPP lender. In order to seek forgiveness, contact your PPP lender to obtain the correct SBA Form. A borrower must submit an application that includes bank statements, documentation verifying the number of employees and pay rates, and canceled checks showing mortgage, rent, or utility payments. Please see SBA’s FAQ on PPP loan forgiveness for more detail.
Existing PPP borrowers that did not receive loan forgiveness by December 27, 2020 may: (1) reapply for a first draw PPP loan if they previously returned some or all of their first draw PPP loan funds, or (2) under certain circumstances, request to modify their first draw PPP loan amount if they previously did not accept the full amount for which they are eligible.
How do you apply for a Paycheck Protection Loan?
Borrowers must apply through their bank or preferred lender. It is recommended to contact your bank first to see if they are an SBA 7(a) lender. The SBA’s Lender Match database is available here. The PPP borrower application form can be found on the U.S. Department of Treasury website.
Are there any risks in applying for Paycheck Protection Program loans as an ancillary business?
Ancillary businesses should consult with an attorney to assess eligibility prior to submitting a Paycheck Protection Program application. Ancillary business owners should also be aware that the application form requires borrowers to certify that they are eligible to receive SBA funding, and confirm that they are not engaged in any activity that is illegal under federal state or local law. Penalties related to knowing false statements on the application for include significant fines and/or jail time.
Where can I find information about the Paycheck Protection Program?
You can find detailed information about the PPP loan program at the SBA Paycheck Protection Program website.
Who qualifies for loans?
Small business owners, qualified agricultural businesses, and nonprofit organizations with 500 or fewer employees that are engaged in legal activity and have experienced economic harm as a result of COVID-19 that are not otherwise excluded may qualify for Economic Injury Disaster Loan (EIDL) assistance if they are located in a low-income community as defined by the Internal Revenue Code and can demonstrate more than 30% reduction in revenue during an 8-week period beginning on March 2, 2020, or later. As stated above, direct and indirect marijuana businesses are not eligible.
Additionally, the COVID-19 Targeted EIDL Advance was signed into law on December 27, 2020, as part of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act. The Targeted EIDL Advance provides businesses located in low-income communities with additional funds to ensure small business continuity. Advance funds of up to $10,000 will be available to applicants located in low-income communities who previously received an EIDL Advance for less than $10,000, or those who applied but received no funds due to lack of available program funding. Funds are no longer available under this program.
UPDATE: The SBA recently implemented a series of changes regarding the COVID-19 EIDL, including the following:
Extended Deferment Periods: Small businesses that received a COVID-19 EIDL will not have to start making payments until 2022.
Beginning the week of April 6, 2021, the loan limit for COVID-19 EIDL will increase from six months of economic injury with a maximum loan amount of $150,000 to twenty-four months of economic injury with a maximum loan amount of $500,000.
Additional information is available here.
What do loans cover?
These loans can be used for fixed debts, payroll, accounts payable, and other bills that cannot be paid due to the impact of coronavirus. Loans cannot be used for refinancing debts incurred prior to a disaster event, payments on other loans owned by another federal agency or SBA, tax penalties, or disbursements to owners or partners except as related to their performance of services for the business.
Who provides loans?
Loans are issued directly by the SBA.
Is there a limit on loan amounts?
Beginning the week of April 6, 2021, the loan limit for COVID-19 EIDL will increase from six months of economic injury with a maximum loan amount of $150,000 to twenty-four months of economic injury with a maximum loan amount of $500,000. The EIDL is a 30-year loan with a 3.75% fixed APR for businesses and 2.75% for non-profits.
Are borrowers required to provide collateral?
Collateral is required for all loans over $25,000 and personal guarantees are required for loans over $200,000.
Is loan forgiveness available?
The EIDL loans are not forgivable. The loan may be prepaid at any time with no pre-payment penalties.
How do you apply for an EIDLP?
Borrowers must apply through the SBA. Additional information is available here.
Can businesses receive Paycheck Protection Loans and EIDLP Loans to cover coronavirus related expenses?
Eligible businesses may be able to borrow under both programs provided loans are not for the same expenses.
What programs are available for food and agricultural businesses-specifically hemp producers?
In addition to the general loans, tax, and other benefits available under the Federal Stimulus (such as EIDL and the Paycheck Protection Program), the CARES Act, CAA, and ARPA include several emergency appropriation provisions to provide relief to the agricultural sector.
ARPA provided a combined $22.7 billion (for nutrition and agricultural programs) to create programs specifically designed to support food supply chain and agricultural response, emergency rural development grants for rural health care, funding for USDA offices for oversight of Covid-19 related programs, farm loan assistance for socially disadvantaged farmers and ranchers, and use of the Commodity Cred Corporation for commodities and associated expenses.
Note that there are a number of other federal and state loans, grants, and other benefits available to food, agriculture, and other businesses outside of those included in the Federal Stimulus. These programs may now have additional available funds from the Federal Stimulus. Many state grant programs have upcoming deadlines and we recommend promptly consulting with counsel regarding opportunities in your states of operation.
The CAA allocated $11,187,500,000, to remain available until expended, to prevent, prepare for, and respond to coronavirus by providing support for agricultural producers, growers, and processors impacted by the coronavirus, including producers and growers of specialty crops, non-specialty crops, dairy, livestock, and poultry, producers that supply local food systems, including farmers markets, restaurants, and schools, and growers who produce livestock or poultry under a contract for another.
ARPA provides include:
Funding for Socially Disadvantaged Farmers: While ARPA does not appropriate funds directly, it’s estimated that $4 billion will be used to provide direct payments of up to 120% of a socially disadvantaged farmer’s or rancher’s outstanding debt as of January 1, 2021.
General Agricultural Provisions: $10.4 billion for programs designed to support the agricultural and food supply chain. These types of provisions include animal-related surveillance or COVD-19 mitigation efforts for agricultural workers, purchase and distribute agricultural commodities to nonprofits, restaurants, or other food-related entities, and increase access to health care in rural communities.
Food Supply Chain and Agriculture Pandemic Response: $3.6 billion for USDA to purchase and distribute agricultural commodities and fund COVID-19 mitigation efforts for agricultural and supply chain workers.
The CARES Act provisions5 include:
$9.5 Billion to the Department of Agriculture for Agricultural Producers: $9.5 billion to the USDA to provide financial support to farmers and ranchers impacted by coronavirus. The funding is allocated for specialty crops (note that hemp is not formally considered by USDA to be a specialty crop), producers who supply local food systems and farmers’ markets, restaurants and schools, livestock producers (i.e., cattlemen and women, and dairy farmers).
$14 Billion to Commodity Credit Corporation (CCC): $14 billion for the fiscal year 2020 to replenish the CCC (a funding mechanism for agricultural programs) which is used to stabilize, support and protect farm income and prices through initiatives like the Market Facilitation Program. This replenishment will allow USDA to develop new support programs to assist agricultural producers and potentially help agribusinesses such as ethanol plants.
$20.5 Million of Lending for USDA’s Rural Development Business and Industry Loan Guarantee Program: The Act includes $20.5 million to support $1 billion in lending for USDA’s Rural Development Business and Industry Loan Guarantee Program. This program targets rural businesses and provides loans ranging from $200,000 to $5 million, with an average size of approximately $3 million. Eligible businesses include businesses with facilities located in rural areas that save or create jobs. Most types and sizes of businesses are eligible, including those engaged in manufacturing, wholesale, retail, and service industries, with certain exceptions. Eligible entities include partnerships, individuals, cooperatives, for-profit and nonprofit corporations, including publicly-traded companies, tribal groups, or public bodies.
A temporary three-month extension on repayment of commodity marketing assistance loans, from nine months up to a year: Until September 30, 2020, the Secretary may extend the term of a marketing assistance loan authorized by Section 1201 of the Agricultural Act of 2014 (7 U.S.C. 9033) for any loan commodity to 12 months.
$100 million in grants to improve rural broadband.
The CAA Coronavirus relief provisions6 include:
- Additional funding for existing USDA programs: The CAA includes additional funding for programs such as Specialty Crop Block Grants, the Local Agriculture Market Program, the Farming Opportunities Training and Outreach Program, and Farm Stress Programs.
How can Rural Development Business and Industry Loans be used?
Loan funds may be used for any essential business purpose, including but not limited to the following: (1) Business acquisitions, construction, conversion, expansion, repair, modernization and development; (2) Purchase of equipment, machinery, and supplies; (3) Startup costs and working capital; Projects supported by New Markets Tax Credits; (4) Debt refinancing under certain conditions. Funds can be used to refinance loan provided the refinancing improves cash flow while creating or saving jobs.8 More information on the USDA’s Rural Development Guaranteed Loan Program can be found here and here.
Where can farmers get more information about potential federal loans?
USDA’s Farm Service Agency (FSA) is the primary lending arm of the USDA, and its county offices are open by phone appointment. FSA staff are available to continue helping agricultural producers with program signups, loan servicing, and other important actions. Additionally, FSA is relaxing the loan-making process and adding flexibilities for servicing direct and guaranteed loans to provide credit to producers in need.
Some services are also available online to customers via the farmers.gov portal, where producers can view USDA farm loan information and payments and view and track certain USDA program applications and payments. It is important to note that certain farmers licensed under state programs operating under the 2014 Farm Bill authority may not be eligible for FSA loans. Please contact us with specific questions so we can provide more specific information on eligibility based on individual facts and circumstances.
What loans are available to cover employment-related costs?
As discussed above, certain employers can apply for EIDLP and Paycheck Protection Loans. The EIDLP and PPP have been extended by the recently Federal Stimulus packages which authorized an additional $7.25 billion for loans to small businesses under the Paycheck Protection Program (PPP). CAA extended the PPP through March 31, 2021.
Is there any additional financial relief available to employers outside of SBA Loans?
Yes, including: employee retention credits; delays in payment of payroll taxes; and limitations on payments for paid leave and paid sick leave.
UPDATE: Employee Retention Credit: The Employee Retention Credit was introduced under the CARES Act and later updated by the CAA and the ARPA to help those employers who were experiencing financial distress or business closure because of COVID-19. The CAA extended the Employee Retention Credit intended to prevent layoffs, and includes a two-year tax break for business. The ARPA extends the Employee Retention Credit through December 31, 2021, and added a new category of eligible employers. This new category is defined as employers that started a trade or opened a business after February 15, 2020, and have average annual gross receipts of less than $1 million on average. Employers in this new category are limited to a total of $50,000 total employee retention tax credit per quarter.
Social Security Tax Deferral Under the CARES Act: Employers and self-employed individuals may defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees (generally a 6.2% Social Security tax on employee wages), with the deferred tax be paid over the following two years, with half due by the end of 2021 and the other half due by the end of 2022. The payroll deferral period began on March 27, 2020 and ended on December 31, 2020.
UPDATE: The CAA did not extend the payroll tax deferral beyond the provisions outlined in the CARES Act.
Limitations on Paid Leave and Paid Sick Leave: Employers will not be required to pay more than $200 per day and $10,000 in the aggregate in paid leave for each employee; and for each employee, employers will not be required to pay more than $511 per day and $5,110 in the aggregate for sick leave or more than $200 per day and $2,000 in the aggregate to care for a quarantined individual or child.
UPDATE: The ARPA extends these tax credits. Additionally, the ARPA expands the type of leave that employers can receive tax credits for, including (a) leave for an employee to obtain and wait for the results of a COVID-19 test if they have been exposed to the virus or if their employer has requested that they get tested; (b) leave for an employee to receive the COVID-19 vaccine; or (c) leave for an employee who is recovering from injury, disability, illness, or another condition connected to receiving the COVID-19 vaccine.
- Cobra Premium Subsidy: the ARPA will provide a 100% COBRA premium subsidy to “assistance eligible individuals” for a six-month period from April 1 to September 30, 2021. An “assistance eligible individual” is one who was terminated involuntarily and who elects COBRA coverage. This may include employees and covered family members who lost group health insurance due to an involuntary termination or employees who had their hours reduced due to COVID-19. Employees who voluntarily terminate their employment are not eligible for the subsidy. Employers will be able to claim a federal tax credit for the premium subsidy to offset the cost.
Are cannabis businesses eligible for tax credits?
Although eligibility for specific tax credits may vary depending on businesses operations, certain cannnabis businesses, particularly retail businesses, may not be eligible for tax credits as a result of 26 USC § 280E, which states:
“No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”
However, if the credits are deemed to not have been paid or incurred in trafficking, these cannabis businesses may be qualified. We recommend consulting with your CPA or tax counsel to determine whether your business qualifies for the credits.
What options are available to employers that need to reduce their workforce?
Three primary options available to employers include: layoffs; short-term unpaid leave due to lack of work (also known as “furlough”); and reducing employees’ hours and/or pay. Furlough employees may be able to maintain certain benefits such as health insurance; however, receipt of paid sick leave or other paid leave benefits, may render an employee ineligible for the expanded unemployment benefits included in the stimulus packages. Businesses should consult with counsel to understand the benefits and consequences of each option.
Is financial relief available to individuals subject to layoffs, furloughs, or reductions in hours and pay, including employees of cannabis businesses?
If an employee is laid off, furloughed, or experiences a reduction in hours and pay as a result of COVID-19, there are a number of benefits available under the Federal Stimulus, which have been extended by the CAA and the ARPA. Some of the more significant financial benefits available include expanded unemployment benefits; short-time compensation benefits; one-time recovery rebate payments; special rules for retirement funds; student loan suspensions; and eviction moratorium. Employees of cannabis businesses in states with regulated cannabis programs are likely to be eligible for the unemployment benefits described below, as the federal government will provide the funds directly to each state for the state to then distribute to individuals through the state’s own unemployment program.
Expanded Unemployment Benefits: ARPA extends the unemployment benefits that were available under the CARES Act and the CAA.
Pandemic Unemployment Assistance (PUA) provides payment to those not traditionally eligible for unemployment benefits (self-employed, independent contractors, those with limited work history, and others) who are unable to work as a direct result of the coronavirus public health emergency. Under this expanded unemployment program, eligible individuals can receive an extra $600 per week up to 4 months on top of state benefits (state unemployment benefits vary).
The end of the period of applicability is extended to unemployment ending on or before September 6, 2021.
ARPA provides eligible individuals up to 79 weeks of PUA benefits, an extension from the 50 weeks of benefits provided previously (under the CARES Act, the duration of benefits was 39 weeks). The additional 29 weeks of benefits now provided under The ARPA may only be paid with respect to weeks of unemployment ending after March 14, 2021.
Federal Pandemic Unemployment Compensation: The ARPA extends the FPUC program at $300 per week through the week ending on or before September 6, 2021. This is the same supplemental benefit amount that was previously provided under the CAA at the end of 2020.
Pandemic Emergency Unemployment Compensation (PEUC): The ARPA extends PEUC by providing for up to 53 weeks of additional unemployment benefits to eligible individuals who have exhausted the unemployment benefits available under state law. With the latest extension under the ARPA, eligible recipients in many states can now receive up to 79 weeks of benefits. The end of the period of applicability for the PEUC program is extended, without interruption, to weeks of unemployment ending on or before September 6, 2021.
Short-time Compensation Payments: If an employer chooses to reduce employees’ hours instead of laying off workers, and their state has a short-time compensation program, then employees may be eligible to receive a pro-rated unemployment benefit that will be paid for entirely by the federal government through the end of 2020.
UPDATE: The ARPA extends this program through September 6, 2021.
One-time Recovery Rebate: The CARES Act granted eligible individuals a recovery rebate credit of $1,200 for single filers and $2,400 for joint filers (plus $500 per qualifying child).
The CAA provided for an additional round of direct payments of $600 to individuals making up to $75,000 per year, and $1,200 for couples making up to $150,000 per year, as well as a $600 payment for each child dependent.
UPDATE: The ARPA grants eligible individuals a third refundable tax credit equal to $1,400 for single filers and $2,800 for joint filers, plus $1,400 for each dependent of the taxpayer. The credit is for the 2021 tax year; however, the rebate amount is advanced based on 2019 income, or 2020 income if the 2020 tax return has been filed.
Special Rules for Retirement Funds: The 10% early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after January 1, 2020, is waived and the income attributable to such distributions will be taxed over three years. Similarly, the required minimum distribution rules for certain contribution plans and IRAs are waived for the duration of 2020.
UPDATE: The CAA amended this CARES Act provision to include money purchase pension plans.
Federal Student Loan Suspension: For tax years 2021 through 2025, partial or full discharge of an eligible student loan may be excluded from gross income. The types of eligible student loans include (1) loans for post-secondary education if made, insured or guaranteed by a federal, state or local government; (2) certain private education loans; and (3) original or refinanced loans made by an educational institution, charitable contributions to which would be limited to 50% of an individual taxpayer’s adjusted gross income if the loan is made with federal, state or local government or with certain private education lenders pursuant to a program designed to encourage students to serve in occupations, or areas, with unmet needs under the supervision of a tax-exempt governmental unit or organization described in Internal Revenue Code section 501(c)(3).
Foreclosure and Eviction Moratoriums: A borrower with a federally-backed mortgage loan may request forbearance, regardless of delinquency status and without penalties, fees, or interest, by submitting a request to its servicer and affirming financial hardship due to COVID-19. The deadline for requesting an initial forbearance is June 30, 2021. If your loan is backed by Fannie Mae or Freddie Mac, there is not currently a deadline for requesting an initial forbearance.
The CAA did not amend or extend this section of the CARES Act. However, on December 21, 2020, the Federal Housing Administration extended the foreclosure and eviction moratorium through February 28, 2021. Through an Executive Order on January 20, 2021, President Biden extended the moratorium on evictions and foreclosures until at least March 31, 2021. The ARPA did not extend the moratorium.
UPDATE: The ARPA's Emergency Rental Assistance provisions (Title III, Subtitle B, § 3201) includes an additional $21.55 billion for emergency rental assistance funded through the Coronavirus Relief Fund administered by the U.S. Department of Treasury.
To learn more about the eligibility of your business for loans, tax credits, or other relief under COVID-19 related federal or state laws or for support in applying for a loan, please contact your Vicente Sederberg attorney. Please note the information provided is limited to the programs under the Federal Stimulus and is not a comprehensive list of all state, federal, and local programs. There are many other federal and state loans, grants, and other benefits that may be available to your business.
Vicente Sederberg is actively monitoring federal, state, and local action and will continue to provide updates through our COVID-19 Resource Center.
1 Title I, Section 1102 of the CARES Act.
2 Title I, Section 1110 of the CARES Act.
3 The term “cannabis-related legitimate business” is defined as a “manufacturer, producer, or any person or company that is a small business concern and that—(I) engages in any activity described in subclause (II) pursuant to a law established by a State or a political subdivision of a State, as determined by such State or political subdivision; an “(II) participates in any business or organized activity that involves handling cannabis or cannabis products, including cultivating, producing, manufacturing, selling, transporting, displaying, dispensing, distributing, or purchasing cannabis or cannabis products.
4 The term “service provider” is defined as follows: “(I) means a business, organization, or other person that— (aa) sells goods or services to a cannabis-related legitimate business; or (bb) provides any business services, including the sale or lease of real or any other property, legal or other licensed services, or any other ancillary service, relating to cannabis; and (II) does not include a business, organization, or other person that participates in any business or organized activity that involves handling cannabis or cannabis products, including cultivating, producing, manufacturing, selling, transporting, displaying, dispensing, distributing, or purchasing cannabis or cannabis products.
5 These provisions are found in Division B of the Act, entitled “Emergency Appropriations for Coronavirus Health Response and Agency Operations.
6 These provisions are found in Division M, Title VII, Subtitle B, Chapter 1 of the Act, entitled “Agricultural Programs.”
7 If a lender wishes to refinance a loan already in its portfolio, the loan being refinanced must be closed and current for at least the past 12 months and may not exceed 50 percent of the overall loan unless the loan is federally guaranteed.
8 Employees subject to reduced hours and/or compensation may be eligible for short-time compensation benefits.