The novel coronavirus, COVID-19, has impacted nearly every industry, and the cannabis industry is no exception. As the United States economy continues to experience instability and uncertainty, cannabis companies face increasingly difficult challenges, particularly since the legal cannabis industry remains in flux in most states. Some hemp and cannabis business owners have continued operations as usual, while others have closed their doors completely. It is difficult to navigate the cannabis industry during these stressful and unprecedented times, but cannabis lawyers are able to provide experienced counsel and support as needed. Below, we discuss four critical actions cannabis businesses should consider amidst the COVID-19 threat.
Carefully Review Contractual Obligations
Either presently or in the near future, you or someone in the cannabis industry that you deal with will most likely be unable to complete an agreement or transaction because of COVID-19 related issues. It is imperative that you review any formal, or informal, legally binding agreements, no matter your role. Pay particular attention to loan agreements, payment obligations, purchase orders, commercial leases, insurance policies, and any other types of contracts for key terms and phrases, such as “excuse of obligations,” “force majeure,” “interruption,” “acts of God,” or other such vernacular. This terminology is commonly included in contractual clauses, but depending on the specific language, disputes, excuses of performance, and/or litigation may arise. A preventative measure to consider is business interruption insurance, which most cannabis business insurance policies omit in their standard package. However, litigation is already arising regarding business interruption coverage disputes. Many insurers have argued that viruses are excluded under the specific policies. Be sure to re-familiarize yourself with all contracts and possible obligations that may be required of your business or businesses you regularly interact with. It is always advisable to consult with an experienced cannabis business lawyer, as they can review the agreement and advise on a course of action.
Provide Guidance For Your Employees
If you have not already done so, it is strongly recommended that you allow or require your employees to work remotely, to the extent possible. If you are in a jurisdiction with a shelter-in-place order, your business may be deemed an essential business. Depending on the type of cannabis business you are running, whether it is a cannabis dispensary, cannabis logistics, or an ancillary cannabis business, you may need to consider suspending operations for the time being. The CDC provides extensive guidance for businesses and employers, complete with up-to-date cleaning and disinfection instructions, practices for social distancing, and evolving strategies and recommendations for appropriate responses to COVID-19. For example, a business cannot force employees to work if they have reason to believe they are in imminent danger. A highly qualified cannabis lawyer can also provide prudent guidance regarding employee interaction and obligation.
Liquidate What You Can
Cash is king during troublesome economic times. Prior to COVID-19, if cannabis businesses needed to increase liquidity, many would resort to issuing shares of stock; however, due to cannabis stocks losing most of their value over the past year, and because of the various, negative pandemic repercussions, this will no longer be a worthwhile practice as there will be less buyers of cannabis stock, the stock price has declined, and investors may seek safer investments in this climate. Moreover, loan officers are hesitant to lend money to recreational or medicinal marijuana businesses because cannabis remains a Schedule I substance federally. Additionally, many marijuana dispensaries have been deemed “essential businesses,” but they are ineligible for federal stimulus or federal aid, since marijuana is still considered a federally illegal substance. Thus, obtaining extra cash during the pandemic may be particularly difficult for the cannabis industry. To remain operational during these times, cannabis businesses will unfortunately need to mostly rely on sales and service for liquidity, so be prepared for these obstacles and, when possible, liquidate what you can if necessary.
Strengthen Your Industry Relationships
It is important to remember that the cannabis industry is closely connected and thrives on making and maintaining business relationships. During this COVID-19 crisis, utilize your time working from home to field new clients, check on repeat customers, reassure and support your buyers, distributors, or suppliers, and let your community know how your business is handling the current situation. We have been pleasantly surprised at the amount of cannabis businesses taking this time to revinest in their business and clean up loose ends.
As a cannabis lawyer, Chelsie Spencer is dedicated to providing legal counsel and support to a wide range of clients in the hemp and cannabis industries. She practices in the areas of medical marijuana, as well as hemp and CBD, and she represents clients across the cannabis space for their business law and compliance needs. Chelsie remains active in the cannabis legislative community as the industry continues to expand, contributing to notable legal progress. Contact Ritter Spencer Cheng or give us a call at 214.295.5070 for more information.
