The 2018 Farm Bill removed cannabis containing less than 0.3% THC from the Schedule 1 list. According to the U.S. Department of Agriculture (USDA), the byproduct, hemp, is considered to be an agricultural commodity like any other crop. This means that hemp producers are eligible for federal and state agricultural grant programs, tax credits, and assistance provided through the CARES Act, including the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL).
In mid-April, the U.S. Secretary of Agriculture Sonny Perdue announced the $19 billion Coronavirus Food Assistance Program (CFAP) to aid farmers, ranchers and consumers based on actual losses resulting from the pandemic. The majority of those funds are designated for the livestock industry, row crop producers, and specialty crop producers; however, Perdue indicated that the $500 million for “other crops” includes hemp producers.
The USDA recently released guidance on processing direct and guaranteed loans for industrial hemp producers. The notice to state and county offices addresses the requirements a hemp producer must fulfill in order to qualify for USDA’s lending services, including being licensed under a USDA-approved state or tribal hemp plan or licensed directly by the USDA if the business operates in a jurisdiction that does not have its own regulations.
The notice also states:
- The Farm Services Agency (FSA) must have the borrower’s license on file before it will approve direct loan servicing action.
- The FSA will not pay for services related to the required disposal of hemp exceeding the acceptable THC level for direct loans, and FSA will not cover a lender’s advance to the borrower to cover the cost as part of any guaranteed loan loss claim.
- Existing borrowers growing hemp without an individual USDA, state, or tribal license are considered to be in non-monetary default. Such borrowers are also considered in non-monetary default if hemp is being grown on FSA financed real estate or FSA financed equipment and supplies are being used to produce the crop with either a direct or guaranteed loan. Where it is determined that a lender is financing an unlicensed hemp operation, FSA considers the borrower to be in non-monetary default and losses related to hemp will not be covered under the guarantee.
- Under the 2018 Farm Bill, a hemp operation’s license, registration, and hemp production cannot be transferred to another producer or a creditor. If a borrower proposes to transfer anything related to hemp operation, FSA will require the borrower to provide documentation from the licensing authority authorizing the transfer.
It is expected that hemp producers and related businesses may receive push back and denial from lenders regardless of their legal status. In addition to federal assistance, there are many state and local programs and tax provisions available to hemp producers, such as the employee retention credit, deferments of payroll taxes, and limitations on payment for paid leave.
At Price Kong, we do more than taxes. We regularly advise clients on their business practices, including evaluating options for COVID-19 economic relief. For more information, visit pricekong.com.