In late April, the US House of Representatives and Senate voted to pass a $484 billion economic stimulus package providing further aid to small businesses, which was signed by the President. The bill provides additional funding for the small business lending program that had quickly been depleted, and it appears that the hemp industry is positioned to take advantage of this new round of funding.

Authored By: Richard Y. Cheng, JD, MBA, CHC

 

Of the $484 billion economic stimulus package, $321 billion is going to fund the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”), including $60 billion for small lenders and community banks. Further, Economic Injury Disaster Loans (“EIDL”) will be available for hemp farmers with fewer than 500 employees, which is the majority of hemp farmers in the US. EIDLs provide up to $10,000 in advance for small businesses, but hemp businesses must demonstrate adverse economic impacts relating to the coronavirus (COVID-19) pandemic. Also, $50 billion has been allocated for disaster recovery loans and $2.1 billion for additional salaries and SBA expenses.

 

The new economic stimulus package was more directly beneficial to hemp businesses than the CARES Act. The SBA did not offer CARES Act funding, particularly EIDLs, to hemp businesses. In fact, although the SBA’s administrator, Jovita Carranza, received joint letters from Congressional members, and separately from hemp organizations, urging the agency to give hemp farmers access to EIDL funds, the agency indicated that agricultural businesses, including hemp farmers, are ineligible for the stimulus money allocated to small businesses under the CARES Act. This position appeared inconsistent with the bill’s legislative intent. In addition, despite hemp’s current legal status as a result of the 2018 Farm Bill, federal financial institutions had delayed in providing guidance to banks relating to hemp, causing multiple challenges for hemp businesses to open accounts, ascertain lending, or even get banks to initiate a relationship.

 

The $484 billion stimulus package is a more apparent green light for hemp businesses to obtain financial aid. It is therefore critical for hemp businesses to act quickly and not delay applying for EIDLs or the PPP. It is unpredictable when this round of funding will be exhausted, resulting in further delay in obtaining financial relief. Also, there may be ambiguities and challenges for hemp CBD businesses, as many hemp CBD businesses are selling and promoting products that violate the Food and Drug Administration (“FDA”) regulations and the Food, Drug, and Cosmetic Act (“FD&C Act”). In 2020, the FDA has issued numerous warning letters to hemp CBD businesses regarding medical claims in their products. While no specific guidance has been released, it is possible that hemp CBD businesses that have recently received such FDA warning letters may face additional issues when applying for EIDLs and PPP.

 

Approximately one month after the new stimulus package was passed in favor of the hemp industry, another battle has risen. On April 17, 2020, the U.S. Secretary of Agriculture announced the Coronavirus Food Assistance Program (CFAP), a $19 billion relief package to provide support to farmers and ranchers, maintain the integrity of the food supply chain and ensure Americans continue to receive and have access to necessary food. In a statement released by U.S. Senator John Hoevan of North Dakota, chairman of the Senate Agriculture Appropriations Committee, $16 billion in direct payments will include, $9.6 billion for the livestock industry, $3.9 to row crop producers, $2.1 billion to specialty crop producers, and $500 million for “other crops.” According to U.S. Secretary of Agriculture Sonny Perdue, the $500 million for “other crops” includes hemp. Perdue stated, “Hemp growers, if they demonstrate a loss, they will be considered like other crops.” It is important to note that the relief package does not specifically exclude hemp-flower cultivators. Recently, the U.S. Department of Agriculture (USDA) initially announced that hemp growers are ineligible to apply for financial relief from the $19 billion CFAP. However, the USDA rescinded its initial position. The USDA now asserts if hemp businesses can show the commodity experienced a more than 5% price decline from January to April 2020, then hemp businesses may be eligible for financial relief from CFAP.

 

While many hemp businesses have reported significant financial declines due to the pandemic, hemp businesses do not usually publish price data, unlike other commodities whose prices are collected by USDA and commodities traded on the futures markets. Without specific data to support the 5% or greater price decline from January to April 2020, hemp businesses will likely be hindered from accessing financial relief under CFAP, unless USDA amends its current guidelines. However, organizations like Hemp Benchmarks and PanXchange have aggregated data for the hemp industry that undoubtedly demonstrate hemp prices have declined more than 5% from January to April 2020. Legislative efforts are being exercised by multiple lobbying groups to urging USDA to supplement the commodities currently listed in the CFAP regulation by including hemp. The comment period is open until June 21, 2020, so it is more vital than ever for the hemp industry to voice its concerns.

 

Richard Y. Cheng, JD, CHC
Partner, Healthcare Industry Sector

Licensed in Texas & Minnesota

T +1 214.743.4582

F +1 214.665.5952
E richard.cheng@dlapiper.com