Cannabis Companies Can Claim These Payroll Tax Credits Under COVID-19 Relief Package

Cannabis Companies Can Claim These Payroll Tax Credits Under COVID-19 Relief Package

It’s generally agreed upon that cannabis companies are dealt different hands depending on the states they operate in, especially during the COVID-19 pandemic. It shouldn’t be lost on anyone that weed is considered an essential staple during times of hardship —  every state with a regulated marijuana program continued to allow sales to some degree during the pandemic crisis. After all, cannabis is big business, estimated to hit the $12 billion mark in retail sales in the U.S. in 2020 alone.

In some states, like Oregon, Nevada, and Colorado, cannabis operations were deemed an ‘essential service’ and were allowed to stay open for business, albeit while following social distancing and COVID-19 precautionary protocol. Other states allowed medical sales only, meaning those that did not renew their MMJ patient cards before the stay-at-home orders went into place were unable to get their medicine (at least from legitimate, licensed sources). That was the case in Massachusetts, where Gov. Charlie Barker issued an order that shut down recreational sales but allowed medical marijuana dispensaries to remain open.

There is hope, however. While cannabis companies can’t participate in the Paycheck Protection Program (PPP) under the CARES Act, there are provisions in both the CARES Act and the Families First Coronavirus Response Act that are available to cannabis businesses — as long as the feds don’t issue any official guidance otherwise. This aid would come in the form of reduced employer payroll tax liabilities (through various deferrals and credits).

Left Out

Unfortunately, in states like California, while cannabis businesses — medical and recreational — were technically allowed to stay open, the order left room for cities and counties to adopt stricter standards. This has industry advocates worried. Combine a patchwork of emergency orders with exclusion from any direct COVID-19 relief available to other businesses, and a burgeoning industry in its infant stages could topple.

Not only does the cannabis industry have a plethora of financial hurdles to jump over, they are subject to tons of taxes and strict regulations. All without proper, legitimate access to banking services and federal funding. However, while Section 280E of the Internal Revenue Code does not allow cannabis companies from taking any federal credits or deductions, that section is in the income taxes section of the code. Proponents argue that because it’s included specifically in that section, it should not apply to the Families First and CARES Act changes to employment payroll taxes, an important distinction.

Aid to Assist: Credits

Both the Families First and CARES acts provide credits per employee that can reach $5,000-plus each. In cases where businesses were considered non-essential and required to close, additional credits are available. Same goes for those employers that can show their gross receipts — which is the total amount of income generated during a period of time without any deductions — during any quarter in 2020 is below 50% of gross receipts from the same quarter in 2019.  Self employed persons can claim the credit only for what they pay their employees in wages. They themselves are not eligible for the credit.

Aid to Assist: Tax Incentives

Tax incentives include aid to employers to keep the cash flow going during the pandemic. Both Sections 7001 and 7003 of the Families First Act gives businesses tax credits to cover the costs associated with providing employees with expanded family and medical leave, including paid sick leave related to COVID-19 health impacts from April 1, 2020 through December 31, 2020.

Always Cautious

Despite the fact that cannabis companies weren’t excluded directly from these federal relief programs, remain cautious. No matter what, all cannabis companies considering utilizing these tax incentives and credits should do their own due diligence. Conduct a cost-benefit analysis. Gauge how much you stand to gain versus lose by taking advantage of these programs. It is highly (unintentional pun but it stays) recommended to consult with a lawyer experienced with the cannabis industry in your state before doing anything.

About Jessica

Jessica writes for Green Scene Marketing and lives in southern Oregon. A former Tier II recreational cannabis farm manager, she cultivates (and enjoys) smokable hemp and sun-grown cannabis.