Federal law poses challenges to new cannabis businesses

When Lisa Capitani decided to start a small business to educate and guide medical marijuana patients, she knew she’d need some 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 nonprofit that provides free mentorship and advice to people looking to launch businesses.

But her application was recently denied because the program is funded through a U.S. Small Business Administration grant, and marijuana use is illegal at the federal level. Capitani’s experience represents just one of many extra hurdles that often hobble cannabis-related businesses before they get started.

Cannabis-related businesses often struggle to get start-up loans. They’re denied assistance programs. They can’t take the same tax deductions as other businesses. They can’t even use Quickbooks.

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

“There's enough challenges with trying to get into this new semi-regulated cluster mess of a business that it would be helpful if the state offered some kind of access, some kind of access to the kinds of services other businesses have access to,” Capitani said.

A national SCORE spokesperson pointed to the Small Business Administration’s 2019 policy on marijuanarelated businesses in response to a request for comment from Hearst Connecticut Media Group. The policy states businesses that “derive revenue frommarijuanarelated activities or that support the end-use of marijuana may be ineligible for SBAfunded technical assistance.”

The determination should be made on a case-by-case basis, according to the policy.

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

Capitani’s goal with the business is to counsel and educate patients as they navigate the process of starting to take medical marijuana. She’s a patient herself. Cannabis has helped with her chronic pain, and she walked her brother through the process when he started it to soften some of the side effects of his cancer treatments.

“It’s a stressful process, and it’s good having someone who has a medical background and can communicate with their health care providers and advocate for them,” she said.

Aaron Smith, chief executive officer of the National Cannabis Industry Association, said he hears about problems similar to Capitani’s daily. The most common problem cannabis businesses have is obtaining start-up loans, he added.

Many banks are hesitant to give a loan to a cannabisrelated business, and it’s difficult for those businesses to access depository services at 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, laundering or that the money came from an illegal activity.

This typically leaves cannabis-related businesses turning to private loans or personal capital to start their business, Smith said.

“The problem with that is just that a lot of small businesses and entrepreneurs don't have access to private capital,” he said. “Especially communities of color and other disadvantaged communities.”

Connecticut has taken steps to ensure communities most impacted by the war on drugs are represented in the emerging adult-use program, including requiring half of licensees be “social equity applicants” and establishing a program for mentorship and partnership between social equity and other licensees.

The state also plans to have a fund for loans available to social equity applicants.

However, this doesn’t include cannabis-related businesses, like Capitani’s, that don’t sell or produce marijuana.

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

The Small Business Administration’s policy also puts cannabis-related businesses out of the running for federal loans, among other programs the administration offers.

“It’s kind of in the modern era of prohibition,” he said. “We’re not seeing SWAT teams kick down the doors of state-licensed cannabis businesses, but there’s all these effects that federal law have on the industry that makes it quite daunting to get into cannabis.”

Even simple services such as Intuit Quickbooks sometimes can’t be accessed by cannabis businesses, Smith said. The accounting software’s website lists marijuana businesses under its categories of prohibited business types.

Janna Champagne, a 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 counseling and education related to medical marijuana and CBD.

Champagne becamea patient and advocate in 2014. She specializes in the use of cannabis to treat autism.

She said while she thinks the stigma and roadblocks have decreased since she first started her journey with medical marijuana, it’s still difficult for people to get started. She’s been in a variety of roles in her work in Oregon, and was in 2018 denied a 501 C-3 status because it was cannabis-related, she said.

The nonprofit would have provided scholarships for patients who couldn’t afford courses to learn about cannabis, she said.

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

Small businesses, like Capitani’s proposed firm, are disproportionately impacted by what Champagne calls “government stigma.”

Now that she’s been denied from the mentorship program, Capitani plans to spend the next few weeks finalizing her business plan. She’s also calling attorneys to walk her through the challenges she might face — that’s part of the process she’d hoped the SCORE program could assist with.

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