The Employee Retention Credit and You: Cannabis Businesses Can Still Receive CARES Act Funds
Due to significant differences in state and federal law, Cannabis businesses operate under very different and sometimes significantly complicated strictures that other, more traditional businesses don’t need to navigate.
But there is a program that we’ve seen serve as a true lifeline to businesses, including cannabis businesses, as they survive and thrive through the pandemic.
The federal response to the COVID-19 crisis, specifically The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), presented often deeply needed opportunities to businesses across the country to recover lost revenue and support their efforts to keep the lights on through the pandemic and beyond.
Because many of these programs, like the well-publicized Paycheck Protection Program (PPP) program, are structured as deductions from federal tax or credits on income tax paid, Cannabis businesses, especially those involved in manufacturing, are not eligible.
The Employee Retention Credit, or the ERC, is different. Structured as a payroll tax credit, the ERC is available to cannabis businesses that meet the program’s requirements and can deliver potentially significant recovered costs to businesses with W-2 employees.
How does it work?
The ERC program was created under the CARES act to reward business owners who retained employees during the COVID-19 pandemic.
Since its creation, the program was expanded to enable business owners who previously qualified for PPP loans to take advantage of the payroll tax credit. The program does not require a reduction in revenue, only an impact on the business by the COVID-19 crisis.
You can be eligible if you faced issues such as reduced hours of operation, supply chain interruption, equipment shortages, or reduction in capacity in a retail space.
What about 280E?
If you know 280E, you’re certainly familiar with the ins and outs of the cannabis business. This is the federal tax code that prohibits cannabis businesses from utilizing deductions and credits on income tax paid.
Because the ERC program is structured as a payroll tax credit, cannabis businesses may be able to take advantage of the program, presuming they are otherwise eligible for the credit.
We’ve worked with our processing partner across a wide swath of industries over the past year to successfully claim over $8B in ERC credits. We know the process inside and out and are uniquely positioned with expertise and experience to successfully get this done for your business, too.
How do I qualify?
There are three possible ways for you to be eligible.
- Revenue Reduction
If you experienced at least a 50 percent reduction in gross sales for one quarter in 2020 compared to the same quarter in 2019, you can be eligible. Eligibility ends when your revenue reduction rises back to 80 percent of the 2019 level. For 2021, you can be eligible with just a 20 percent reduction from the same quarter in 2019.
- Supply Chain Disruption
If you had a supply chain disruption resulting from a government suspension order to any of your suppliers that resulted in that supplier not being able to deliver critical goods to you, you may be eligibile The impact of that disruption must be more than “nominal” or, more than 10 percent, on business operations.
- Shutdown Impact
This factor is based on a “suspension test” to demonstrate that your operations were partially or fully suspended due to a COVID-19 governmental order. It is possible that your business felt an impact even if the government shutdown was not ordered directly to you. For example, an insurance agent or agency who gained all of their business by visiting doctors’ offices and hospitals may have seen an indirect impact because those visits were no longer allowed. The impact must be more than 10 percent on business operations compared to the same time in 2019.
How does the application process work?
With ERC Provider, claiming the ERC begins simply with a phone call. Once you upload your documents through our secure web service, we’ll evaluate and analyze your application and get all your paperwork prepared to file. Just sign the forms and wait for your refund check. There’s no charge for our initial analysis, so it’s worth the time to find out if your cannabis business can qualify for these valuable credits.