As the COVID-19 pandemic sweeps across the United States and much of the world, businesses across all industries have struggled to endure the widespread repercussions of the crisis. While the crisis has tested nearly all businesses, it has exposed the unique institutional difficulties facing the cannabis industry in the United States. The complex and fractured legal and regulatory framework that governs the industry's operations in the United States, coupled with the impact that the crisis has had on legislative initiatives, has led industry participants to question whether the COVID-19 pandemic may open doors for the industry or whether it may halt years of progress.

Prior to the emergence of the crisis, all involved in the industry were hopeful that 2020 would be a monumental year for cannabis. "Optimism" was the theme of virtually every session at the MJ BizCon conference in Las Vegas in December 2019. With a Pew Research Center survey indicating a sustained increase in support for legalization among the American public, and an increase in proposed legislative initiatives in support of legalization, momentum was growing. See, Daniller, Andrew, "Two-Thirds of Americans Support Marijuana Legalization," PEW RESEARCH CENTER (Nov. 14, 2019). Just prior to the crisis, Gov. Andrew Cuomo of New York presented a fiscal year 2021 budget that included a comprehensive legalization initiative, see "FY 2021 Executive Budget: Making Progress Happen," New York (Jan. 21, 2020). Meanwhile, Gov. Ned  Lamont of Connecticut acknowledged the expansive legalization in Connecticut's neighboring states of Massachusetts and New York, arguing that a "coordinated, regional regulation [on cannabis] is our best chance to protect public health …" Further, the Alabama Senate and Kentucky House of Representatives saw the introduction of legislation calling for legalization of medicinal cannabis. See The Compassion Act, S.B. 135 (Ala. 2020); "An Act Relating to Medicinal Cannabis and Making an Appropriation Therefore," H.B. 136 (Ky. 2020).

Fast forward a few short months and the COVID-19 pandemic has commandeered much of the legislative process, in certain instances halting legislative sessions altogether. Cuomo echoed the sentiments of many state leaders in his daily briefing on April 4, when he acknowledged that "marijuana [was one of the] complicated initiatives that we wanted to work through that we didn't get a chance to do …" before the legislative session was effectively halted by the crisis. see Angell, Tom, "New York Legal Marijuana Push 'Effectively Over' For 2020, Governor Says," Forbes.com (Apr. 4, 2020). Further, in numerous states, advocates had intended to petition for legalization via ballot initiatives but efforts have stalled due to the difficulty of collecting the signatures needed for such initiatives. Brewster, Jack, "On 4/20, A Look At How COVID-19 Has Impeded Weed Legalization Efforts Around The Country," Forbes (Apr. 20, 2020). As the crisis consumed state governments across the country, what began as a strong legislative year for cannabis quickly changed course.

Although the progress of legislative initiatives stalled, the crisis did not diminish the importance of cannabis in many states. In some states, in response to measures to temporarily close businesses and, in some instances, entire industries, cannabis found itself on the short list of "essential" industries allowed to remain operational despite stay-at-home orders. Muse, Queen, "Coronavirus Is Legitimizing Pennsylvania's Marijuana Industry," Philadelphia Magazine (Apr. 14, 2020). Some states went so far as to designate recreational marijuana, not solely medicinal, an essential product amidst the crisis. Levin, Dan, "Is Marijuana an 'Essential' Like Milk or Bread? Some States Say Yes," NY Times (Apr. 10, 2020). This "essential" classification placed marijuana dispensaries under the designation occupied by grocery stores and pharmacies, exposing a vast disconnect between the treatment of cannabis by state governments and the federal government.

Notwithstanding its "essential" designation, the industry is hardly impervious to the challenges facing all United States industries during this time. In fact, the financial impact of the crisis may be far more devastating to the cannabis industry than initially projected, with many dispensaries seeing a substantial demand decrease as the stay-at-home orders continue, see Martin, Brittany, "Cannabis Sales Have Dropped Off Dramatically, Just Weeks After Hitting All-Time Highs," LA Magazine (Mar. 30, 2020). More importantly, cannabis businesses have not, to date, been afforded the financial protection mechanisms that other small businesses have been provided. Though "essential" in the eyes of state governments, cannabis businesses are not eligible for the financial programs under the CARES Act (e.g., Paycheck Protection Program) designed to facilitate the survival of businesses during the resulting financial crisis. Specifically, pursuant to guidance issued by the Small Business Administration, an entity is ineligible for assistance if the entity "is engaged in any activity that is illegal under Federal, state or local law." See "Business Loan Program Temporary Changes; Paycheck Protection Program," 85 Fed. Reg. 20811 (Apr. 15, 2020). Thus, though designated as an essential business for purposes of many state regulations, because cannabis remains federally illegal, cannabis businesses are ineligible for these financial benefits.

As Mike Glazer and Mary Jane Gibson of the cannabis podcast Weed+Grib indicated in a May 4  group roundtable with Iris Dorbian at Forbes, "the cannabis industry suffers from zero access to federal funds. We need to legalize cannabis at a federal level so it can be a part of the economy just like any other sector."See Dorbian, Iris, "Six Cannabis Leaders Discuss How Coronavirus Is Impacting The Industry," Forbes (May 4, 2020). These sentiments are echoed by participants across the industry. Cannabis companies are faced with the same desperate financial conditions as other businesses and, despite contributing almost two billion dollars in federal taxes annually, the businesses remain ineligible for relief efforts afforded by the federal government. See Smith, Aaron, "IRS Collects Billions in Pot Taxes, Much of it in Cash," CNN (Jan. 18, 2018).

In the fall of 2019 the House passed the SAFE Banking Act, which would have paved the way for greater banking and financing access for cannabis companies, however the bill has yet to pass the Senate. H.R.1595, 116th Congress (2019-2020). In late April, members of Congress brought forth the "Emergency Cannabis Small Business Health and Safety Act" that would allow cannabis related legitimate businesses and service providers to be eligible for emergency grants under the CARES Act. H.R. 6602, 116th Congress (2020). Experts, however, believe any financial aid for cannabis businesses would only pass if it were to be included in a greater aid package. Smith, Jeff, "Marijuana Lobbyists Focus On Next Big Coronavirus-Aid Package After Doling Out $5 Million-Plus in 2019″ Marijuana Business Daily (Apr. 22, 2020). In the recent coronavirus relief bill presented on May 12, the House of Representatives paved way for financial aid for cannabis businesses by incorporating language used in the SAFE Banking Act in order to facilitate access to financial aid for cannabis businesses and shield participating banks from penalty by federal regulators. see Jaeger, Kyle, "Marijuana Banking Access Included in House Leadership's Coronavirus Relief," Marijuana Moment (May 12, 2020). Considering the strong opposition by certain members of Congress to the marijuana movement and the hyper-politicized nature of the COVID-19 stimulus plans, without widespread bi-partisan support for the inclusion of cannabis recipients, it may be a difficult road forward for such initiatives. Further, and to that point, it is not clear at the time of this writing whether the Senate will support the inclusion of the cannabis banking relief provisions in the larger coronavirus relief bill.

An additional threat that has emerged from the COVID-19 crisis is the emergence of a growing black market cannabis business. As state regulated industries struggle to maintain operations during the crisis, black market businesses have emerged to capitalize, taking potential revenue from those state-legal, tax generating operations. The New York Post has reported that desperate members of the restaurant industry, who have otherwise seen their method of income dry up, have taken to the black market marijuana industry.See Kaplan, Michael, "Coronavirus Tales: I'm going to Deal Weed Until My Restaurant Reopens," The New York Post  (Mar. 21, 2020). The black market has emerged as a means of skirting the difficult restrictions imposed on state-legal businesses and a means of responding to diverse client desires amidst a national emergency, leaving the legal businesses vulnerable to competition.

Between the stalling of legislative initiatives, challenge of financing access, and the resurgence of black market competition, the cannabis industry faces a three-pronged attack that originated from the COVID-19 pandemic. As the economic impact of the COVID-19 crisis continues to materialize, it is evident that the billion-dollar cannabis industry is increasingly vulnerable and, while certain members of Congress strive to address concerns, there is no clear resolution ahead for businesses. Without the implementation of funding initiatives for the industry, financial constraints that have historically threatened the industry will be further exacerbated as financial projections fail to paint a rosier picture in the months to come. On the flip-side of the issue, however, is the way that products have been legitimized by many state governments, emphasizing just how important the industry has become. When the crisis subsides, the "essential" title may not soon be forgotten, and the acknowledgement that these products were deemed essential in a time of unprecedented crisis may prove to be the boost that legalization initiatives needed. In the words of Rep. Earl Blumenauer (D-Ore.), in asserting that the widespread "essential" designation may springboard the industry: "this is something that makes a huge difference to the lives of hundreds of thousands of people every day [and] [the COVID-19 pandemic and the essential designation] might be part of a turning point." See Fertig, Natalia, "Cannabis Finds its Moment Amid Coronavirus Outbreak," Politico (Mar. 27, 2020).

Joe Bedwick is co-chair of Cozen O'Connor's cannabis industry team, a multidisciplinary cannabis practice comprising attorneys from virtually every practice group within the firm and with a representative resident in 13 of the jurisdictions across the country in which cannabis is legal at the state level. 

Lindsey Stillwell is an associate member of the firm's cannabis industry team, practicing in the corporate law practice group.