On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act, expanding the Small Business Administration’s (SBA’s) 7(a) loan program by establishing the Paycheck Protection Program (PPP). The PPP authorizes up to $349 billion in federally backed loans through June 30, 2020, or until funds run out, for many small businesses across the country. Given the rapid pace with which the federal government has enacted and implemented this legislation, you may be wondering if your tobacco, hemp, or marijuana business is eligible for PPP loans.
What are the General Eligibility Requirements?
A business may be eligible for a PPP loan if it was in operation on February 15, 2020, paid employees or independent contractors, and meets any one of the following criteria:
- Has 500 or fewer employees whose principal place of business is in the U.S.;
- Operates in a certain industry and meets applicable SBA employee-based size standards for that industry (if applicable);
- Qualifies as a 501(c)(3) tax-exempt nonprofit organization, a 501(c)(19) tax-exempt veterans organization, a Tribal business concern as described in § 31(b)(2)(C) of the Small Business Act, a “small business concern” as defined in § 3 of the Small Business Act; or
- Operates under a sole proprietorship or as an independent contractor or eligible self-employed individual.
A business is ineligible for a PPP loan for any of the following reasons:
- It is engaged in any activity that is illegal;
- It is a household employer;
- 20 percent or more of its equity is owned by a person who is incarcerated, on probation, on parole; presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of a felony within the last five years; or
- It, or any business owned or controlled by the it or any its owners, has ever obtained a direct or guaranteed loan from SBA or any other federal agency that is currently delinquent or has defaulted within the last seven years and caused a loss to the government.
In general, businesses and their affiliates will be considered together for PPP eligibility determination purposes. Entities may be considered affiliates based on various factors including stock ownership, overlapping management, or identity of interest. Notably, applicants, not lenders, are responsible for determining their PPP eligibility and are required to submit eligibility certifications to lenders.
Is My Tobacco Business Eligible?
If your tobacco business otherwise meets the basic requirements described above, it should be eligible to receive PPP loans.
Is My Hemp Business Eligible?
Consistent with the Agricultural Improvement Act of 2018, the SBA authorizes loans to businesses that grow, produce, process, distribute, or sell products derived from hemp. So hemp businesses should be eligible to receive PPP loans if they otherwise meet the basic requirements described above.
Is My Marijuana Business Eligible?
The SBA prohibits loans for any business engaged in illegal activity. This exclusion includes businesses that make, sell, service, or distribute products or services used in connection with illegal activity. Both direct and indirect marijuana businesses (as defined below) are ineligible for PPP loans.
A “Direct Marijuana Business” is a business that grows, produces, processes, distributes, or sells recreational- or medical-use marijuana or marijuana products, edibles, or derivatives, regardless of the amount of such activity or whether it is legal under local or state law.
An “Indirect Marijuana Business” is a business that derived any of its gross revenue for the previous year (or, if a start-up, anticipates that 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. Notably, this broad definition may exclude some small businesses from the PPP that would otherwise expect to be eligible. Some examples may include:
- businesses that provide testing services, or sell or install grow lights, hydroponic or other specialized equipment, to one or more Direct Marijuana Businesses;
- 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; or
- 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.
We have assembled a COVID-19 Task Force of Troutman Sanders and Pepper Hamilton attorneys who are available to help companies navigate this evolving public health crisis. They represent diverse practice areas and industries, across multiple geographies. If you have any questions, don’t hesitate to contact us.
Our Cannabis Practice provides advice on issues related to applicable federal and state law. Marijuana remains an illegal controlled substance under federal law.