Federal law poses challenges for new CT cannabis companies

When Lisa Capitani decided to start a small business to educate and guide patients with medical marijuana, she knew she would need advice.

So Capitani, a nurse who lives in Newtown, turned to other nurses across the country who have cannabis-related businesses. And she applied for a mentor through SCORE, a non-profit organization that offers free mentoring and advice to people looking to start businesses.

But her application was recently denied because the program is funded by a grant from the US Small Business Administration and the use of marijuana is illegal at the federal level. Capitani’s experience is just one of the many additional hurdles that often hamper cannabis-related businesses before they get started.

Cannabis-related businesses often struggle to secure start-up loans. They are denied assistance programs. They cannot benefit from the same tax deductions as other businesses. They can’t even use Quickbooks.

These barriers tend to stem from the same problem: State law contradicts federal law regarding the legality of cannabis.

“There are enough challenges in trying to get into this new semi-regulated cluster mess of a business that it would help if the state offered some kind of access, some kind of access to the kinds of services. that other companies have access to, ”Capitani said. noted.

A national spokesperson for SCORE highlighted the Small Business Administration’s 2019 policy on marijuana-related businesses in response to a request for comment from Hearst Connecticut Media Group. The policy states that companies that “earn income from marijuana-related activities or support the end-use of marijuana may not be eligible for SBA-funded technical assistance.”

The decision must be made on a case-by-case basis, in accordance with the policy.

“SCORE is a resource partner of the US Small Business Administration and a recipient of a federal grant,” the spokesperson said in an email. “As such, federal laws prevent SCORE from advising any client whose activity is illegal or criminal.”

Capitani’s goal with the company is to counsel and educate patients throughout the process of starting medical marijuana use. She is a patient herself. Cannabis helped relieve her chronic pain, and she accompanied her brother through the process when he started it to alleviate some of the side effects of his cancer treatments.

“It’s a stressful process, and it’s good to have someone who is medically trained and who can communicate with and advocate for your health care providers,” she said.

Aaron Smith, chief executive of the National Cannabis Industry Association, said he had heard of issues similar to Capitani’s daily. The most common problem facing cannabis companies is getting start-up loans, he added.

Many banks are reluctant to give a loan to a cannabis-related business, and it is difficult for these businesses to access the depository services of many banks. The Bank Secrecy Act of 1970, which aims to prevent money laundering, requires banks to submit a report to the Financial Crimes Enforcement Network if they suspect fraud, money laundering, or the money has come from illegal activity.

This typically leaves cannabis-related businesses to look to private loans or personal equity to start their businesses, Smith said.

“The problem is, a lot of small businesses and entrepreneurs don’t have access to private capital,” he said. “Mostly communities of color and other disadvantaged communities.”

Connecticut has taken steps to ensure that communities most affected by the war on drugs are represented in the new adult use program, including requiring half of licensees to be “equity seekers.” social ”and establishing a mentoring and partnership program between social equity and other licensees.

The state also plans to make a loan fund available to candidates for social equity.

However, this does not include cannabis-related companies, like Capitani, which do not sell or produce marijuana.

The federal tax code also does not allow marijuana businesses to take tax deductions for normal business expenses such as marketing, salaries, or security costs. The cost of the goods can be deducted, however, according to the Internal Revenue Service website.

Small Business Administration policy also puts cannabis-related businesses out of the race for federal loans, among other programs offered by the administration.

“It’s kind of in the modern era of prohibition,” he said. “We don’t see SWAT teams breaking down the doors of state-licensed cannabis companies, but there are all these effects that federal law has on the industry that makes entering cannabis quite intimidating.”

Even simple services like Intuit Quickbooks are sometimes not accessible to cannabis companies, Smith said. The accounting software website lists marijuana businesses in its categories of prohibited business types.

Janna Champagne, founding member of the Cannabis Nurses Network, has been involved in various cannabis related businesses for years. She now operates Integrated Holistic Care, which offers health advice and education related to medical marijuana and CBD.

Champagne became a patient and activist in 2014. She specializes in the use of cannabis to treat autism.

She said that while she thinks the stigma and barriers have diminished since she started her journey with medical marijuana, it’s still difficult for people to start. She has held various roles in her work in Oregon and was denied 501 C-3 status in 2018 because it was related to cannabis, she said.

The association reportedly provided scholarships to patients who could not afford to attend classes to learn about cannabis, she said.

“It gets better in small steps, and sometimes it’s one step forward and two steps back,” she said of the barriers to starting a business.

Small businesses, like the business proposed by Capitani, are disproportionately affected by what Champagne calls “government stigma”.

Now that she has been denied the mentorship program, Capitani plans to spend the next few weeks finalizing her business plan. She also calls lawyers to explain the challenges she might face – this is part of the process she was hoping the SCORE program could help her with.

“It’s just disappointing that there is an organization within the system, within our state that could help me but won’t help me,” she said.

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