Small business owners around the country are in need of help as more and more states ask their citizens to stay at home. Cannabis is no exception.
Here are some resources and tax updates that you need to know as the world rushes to contain COVID-19 and stabilize the economy.
Personal Economic Stimulus Checks
Congress agreed on a $2 trillion stimulus deal this week that authorizes checks to go out directly to individuals. The bill provides single Americans $1,200, married couples with $2,400, and parents receive $500 for each child under age 17. Estimates by the Tax Policy Center expect 90% of Americans to be eligible for full or partial payments. How much you receive depends on your 2019 federal tax returns, if you’ve already filed it, or else on your 2018 return.
For some, this offers an incentive to use your 2019 taxes, rather than your 2018 return. If you’ve had another child or have more or less income, this will impact your stimulus check. Most experts expect the checks to be in the mail around May, so hold or file your 2019 returns depending on where you can receive the most value before then.
New Tax Return Deadline
The IRS also announced a three-month extension on the April 15 deadline to pay your federal income taxes. Both businesses and individuals will get an additional 90 days to submit their tax return, with a new deadline of July 15, 2020. This extension applies to individuals paying income taxes on up to $1 million in tax owed or businesses paying amounts on up to $10 million in taxes owed. This extension allows you to file later without penalties or interest added to your tax bill.
Some states are also extending their deadlines. California is providing a 60-day extension for individuals and businesses, while Maryland is giving additional time for certain businesses. Most states are allowing a 60-90 day extension, but that’s not guaranteed. Find the full list of extensions by state here.
Our experts recommend submitting your 2019 tax return as soon a possible, especially if you’re due a refund. The sooner you submit, the sooner you’ll get your cash. If you owe money, then know what your liability is and give yourself time to budget accordingly. Note that if you choose to file an extension to October, then you may be subject to penalties and interest.
NOTE: This extension does not apply to regular cannabis sales and use tax or cannabis excise tax.
Coronavirus Disaster Relief for Small Businesses
The Small Business Administration (SBA) is offering a few different loan programs for small businesses impacted by the Coronavirus. The SBA Economic Injury Disaster Loan provides low-interest loans to small businesses and non-profits for working capital needs up to $2 million. The SBA is also offering express bridge loans of up to $25,000 with less paperwork needed to apply.
However, because cannabis remains illegal at the federal level, cannabis operators are not eligible to apply for disaster relief loans. “With the exception of businesses that produce or sell hemp and hemp-derived products [that were federally legalized under the 2018 Farm Bill], marijuana-related businesses are not eligible for SBA-funded services,” said the SBA.
BUT…if you have a multi-entity cannabis operation, you may be able to qualify for one of the SBA loans if your business does not touch the cannabis plant. For example, if you have a real estate management company that leases buildings out, you may be able to qualify.
[Read more: Can Cannabis Businesses File for Bankruptcy?]
Further, some municipalities have decided to consider cannabis businesses as “essential,” meaning dispensaries can remain open during a lockdown. California, Connecticut, Nevada, and New Jersey are among the states that have declared cannabis as essential to allow you to continue serving customers.
Is Cannabis Recession-Proof?
As the economy struggles along, many cannabis entrepreneurs may be worried about their long-term business prospects. There’s a huge demand for cannabis at the moment; the pandemic has caused consumers to stock up on products that help with anxiety. As for the future, cannabis remains a vice for many – and a medical necessity for others. Consumers tend to keep their vices during a recession but may trade down to products that are less pricey.
“Industry experts note that most cannabis consumers are wedded just as closely to marijuana as they are to other essentials, ranging from pharmaceutical medicines to toilet paper and – perhaps a closer industry parallel – alcohol,” reports Marijuana Business Daily.
As more people get laid off and personal budgets get tighter, we expect that consumers will still spend on cannabis – but that they will spend less. Alcohol provides a good bellwether: people still drink in a recession but are more likely to go for Bud Light rather than craft beer.
For dispensary owners, you can prepare by rearranging your stock and offerings to highlight price-conscious or value options. Add a frequent buyer card program to foster customer loyalty. And, above all, try to sell your premium products sooner rather than later. Don’t restock your high price tag items to the same extent you have in the past – you’ll just end up with more deadstock on your hands.
Stay safe, communicate with your customers, and do what you can to support your employees.
Reach out to our team for advice during these unpredictable times.