This was intended to provide potentially repayable loans to businesses affected by the COVID-19 pandemic. In this article, we discuss an effective alternative to PPP loans for cannabis.
Beware of PPP Loans for Cannabis
While some might encourage these operations to apply, the federal government’s classification of cannabis is problematic for this type of loan. Since the SBA has its own application process, we need to look at this to determine whether or not cannabis applicants can successfully obtain PPP loan. Cannabis companies have always had a hard time interacting with government, so it’s not surprise that applying for aid fund can be difficult.
ERC: An Alternative to PPP Cannabis with Northstar
Many companies either failed to qualify for PPP or obtain PPP funds and had to return them to the government shortly after. Now, ERC offers a fully refundable payroll tax credit that employers can use. In order for your business to be eligible to apply for ERC, it must undergo operating suspensions due to government restrictions or a significant drop in gross revenue. To claim the ERC, you will need to do so on IRS Form 941, “Employer’s Quarterly Payroll Tax Return.”
If your business qualifies, you can reduce its federal employment tax filings by the ERC amount allowed. However, if your ERC exceeds the remaining federal employment tax filings for that quarter, your business can complete Form 7200 to request a prepayment.
IRC Sec. 280 does not allow federal tax reductions and gross income tax credits if the taxpayer is engaged in an activity related to the manufacturer, distribution or sale of controlled substances classified as Schedule I or Schedule I drugs. Since cannabis is still classified as a Schedule I drug, the selling activity is considered trafficking under federal law.
IRC Sec. 280E prevents cannabis companies from benefiting from typical business deductions. The ERC works like a payroll tax credit. Additionally, the CARES Act does not explicitly exclude cannabis companies from claiming ERC. While eligibility for the ERC is questionable and the IRS has yet to offer advice, it is possible that cannabis companies meet all the ERC eligibility requirements may be eligible.
Learn more about the ERC
If your business has been affected by the pandemic, we are ready to help you at no upfront cost.
ERC Opportunity explain
The ERC offers up to $33,000 per employee.
Summary ERC Process
To get started, we’ll need to determine if you are an ERC-eligible employer for any quarter. We will also check your company’s employment level in 2019. This will determine your ERC eligible salary. Once we have all this information in hand, we can calculate the ERC and work with your payroll service provider to determine options for claiming benefits. Contact Northstar Finance to find out more.
