On April 28, Tonkon Torp hosted a webinar to help guide cannabis businesses through the unique challenges that the cannabis industry faces due to COVID-19. The panel featured attorneys Danica Hibpshman, Jessica Morgan, Ferdie Ruplin, and David Petersen. Alex Tinker, chair of the firm’s Cannabis Industry Group, moderated the webinar.
The attorneys recommended ways that cannabis businesses can use this time of strong sales to shore up their business practices and prepare to weather a potential downturn as customers face a reduction in disposable income.
Danica pointed out that while the pandemic has brought challenges, it has also created an overall opportunity for the industry. OLCC and businesses can use this time to work collaboratively on temporary and long-term solutions that will ultimately better align cannabis regulations with those for beer and wine, and streamline processes that could help clear out the OLCC’s two-year backlog of new license and change approvals. She noted that the state continues to collect cannabis retail taxes during the pandemic.
Ferdie walked through one of the key hurdles facing the industry – the lack of a financial safety net. The PPP and EIDL loans available through the CARES Act are governed by the federal Small Business Administration, which is prohibited from lending to businesses that have a direct or indirect connection to marijuana. The situation is much the same at the state level, since monetary relief is largely tied to federal funding or subject to existing provisions that prohibit lending to cannabis. He ended on the hopeful note that state legislators are including the cannabis industry in conversations about future rounds of financial relief.
In a segment on business transactions during COVID-19, Jessica stressed that all businesses should review their contracts for clarity on performance obligations and any potential outs for continued performance that could help reduce hardship. For M&A activity in the cannabis industry, she said to expect more due diligence across all categories, and closer scrutiny on document language regarding valuation, risk, and operations. In order for businesses to maintain marketplace value, Jessica suggests taking a close look at the supply chain for weak points and diversify as needed, bolster an online presence, and look at additional sales channels such as delivery.
David reviewed ways that cannabis tenants can take advantage of Oregon’s current commercial rent relief and eviction protections. He noted that tenants need to act proactively with their landlords to seek relief, but in the light of a booming sales trend, they may have a hard time finding evidence that rent deferral is needed. In general, he is seeing a spirit of cooperation and shared sacrifice between tenants and landlords and that both sides are open to reviewing contracts and agreeing on what rent relief may look like. This may be a deferral, a waiver of late fees, or an agreement to spread out payment over the term of the lease.
A recording of this webinar is available online. Webinar guests were encouraged to follow up directly with speakers to ask questions not addressed during the hour-long program. Tonkon Torp has published a COVID-19 Business Resource page that is continually refreshed with content that touches on a broad range of corporate topics.