COVID-19 is unlike anything we have seen before, and, unfortunately, it is unlikely that businesses were prepared for this epidemic. Although each business is unique and will experience the effects of the coronavirus differently, there are some common considerations that businesses of all sizes and sectors should make, if they have not already. To complicate matters further, there are particular concerns that only marijuana and hemp businesses will have to make during this time.
Numerous public health orders and prevention guidelines have been issued at the federal, state, and local level with the goal of flattening the coronavirus curve. Importantly, businesses play an essential role in flattening the curve and must be flexible during this time to do so. The Center for Disease Control (“CDC”) and the Occupational Safety and Health Administration (“OSHA”) have both issued federal guidance that will assist businesses. A number of states have also implemented safeguards to prevent the virus’s further spread, including stay at home orders. These orders will directly impact all businesses, including marijuana and hemp businesses.
A few states, including Colorado and California, have declared marijuana businesses as essential, allowing licensed establishments to remain open under strict restrictions and social distancing is implemented. In fact, Denver’s Mayor, Michael Hancock, initially announced that dispensaries would temporary close, however, panicked shoppers flocked to dispensaries. As a result of the chaos, Mayor Hancock quickly reversed the decision, aligning with many other states which have deemed “marijuana” essential. Considering hemp, there have been few, if any, specific references to hemp; this is likely because many states regulate hemp alongside conventional food, which is generally deemed essential.
Communicate with Employees Regarding COVID-19 Decisions
In response to COVID-19, businesses have many decisions to make, some more difficult than others. As this is an uncertain time for all, businesses should inform employees of any employment decisions and should provide employees with a clear plan detailing temporary operations.
Some businesses may have to reduce the workforce and overall expenses. Although this is not limited to the marijuana and hemp businesses, businesses of all sectors and sizes are taking precautionary measures and terminating and/or laying off employees. Prior to making these employment decisions, businesses should consult their counsel to analyze labor laws and ensure that the business is operating within the legal bounds. Businesses should reference employment contracts and policies to comply with stated compensation, as well as layoff and termination procedures.
Considering marijuana and hemp businesses, these establishments will be required, if not already, to limit the number of employees working at one time and implement social distancing. To do so, businesses should encourage employees who are able to work from home to do so. The transition to working from home can be difficult, however. To promote an easy transition, businesses should seek to foster a virtual environment that is indicative of the in-office experience in an effort to create a sense of normalcy.
Importantly, businesses should provide all employees with the additional supplies they need to effectively complete their tasks and obligations. For employees working at dispensaries and other licensed establishments, they will need additional sanitization supplies, such as disinfectant cleaners, gloves, hand sanitizer, and paper products. Employees working at home may need additional office supplies or services to facilitate virtual work-life, such as a webcam or microphone.
Review Existing Contracts
Businesses should gather any and all existing contracts and review the documents to identify any protections contained therein. Useful documents include leases or mortgages, agreements detailing the terms of a loan, employment, purchases, supplies, and insurance policies, among others.
When reviewing, businesses should look for force majeure provisions or any other applicable provision that provides a remedy for acts of God and/or the frustration, impossibility, or interruption of performance. Typically, contracts that include a marijuana or hemp business usually contain a force majeure clause that references political changes that would make performance impossible, such as change in legal status. Certain public health orders, like a stay at home order, may invoke the clause, depending on the language of the contract.
Businesses should also review existing insurance policies. Policies may contain coverage for all or a portion of the expenses incurred as a result of responding to COVID-19. Policies may include business disruption coverage to cover lost income and extra expenses that arise from the orders, including orders that require marijuana and hemp businesses to implement social distancing or temporarily close.
Be Aware of Regulatory Delays and Promote Industry Camaraderie
At this time, businesses should be cognizant of and sensitive to potential regulatory delays. State agencies are quickly responding to COVID-19 and implementing emergency response protocols. As a result, marijuana and hemp businesses should anticipate regulatory delays. Businesses should effectively communicate with state agencies and stay up to date with the most recent news by visiting their website.
It is important for marijuana and hemp businesses to maintain a sense of unity and camaraderie to help one another through this uncertain time. Every person, no matter the industry, will be touched by the effects of COVID-19. As a result, many are anxious and are looking for additional guidance, if not some of normalcy. As we temporarily transition to virtual meetings and social distancing, it is important for our niche industry to collaborate with one another to help stabilize and contribute to the global efforts to contain the coronavirus.
Businesses should have candid conversations with employees, customers and suppliers and detail the portions of their plans that may affect commercial relationships. We empower businesses to share any information and ideas throughout the industry. This collaboration will spark creative conversations about the methods and practices that can be utilized to reduce contact and to comply with orders, all while remaining open. This unity will not only support the marijuana and hemp industry’s collective response to flatten the curve, but also to support one another through this trying time.
Evaluate the Potential to Secure Investment and/or Raise Capital
As the stock market and the national economy teeters, marijuana and hemp businesses will likely have an even more difficult time securing investments and raising capital. As marijuana businesses are unable to secure bank loans or federal financing, they must instead look towards private investors. Layering an uncertain financial environment on top of an already difficult financial situation will make financing nearly impossible. This is not to say that financing will not be available; investors will still be out there. Instead, marijuana businesses may have a difficult time locating private investors because of the looming economic uncertainty.
In response, both marijuana and hemp businesses will need to become even more creative and work with potential investors. Businesses currently in negotiations may be able to proceed as planned, but should be prepared for anything. Some negotiations may need to be reworked or suspended, while others may need to be ended entirely. Notably, those investments that are crucial and time sensitive require special evaluation.
Please reach out to the Hoban Law Group to discuss your particular business or legal concerns. We are here to help you and your business adapt to and comply with the applicable orders.