The COVID-19 pandemic created a rift between essential and nonessential businesses. Essential businesses struggled, and nonessential businesses are still trying to get back on their feet. Some business owners are exploring the benefits of an Employee Retention Tax Credit (ERTC) loan to do so.
ERTC loans may be suitable for certain types of operations, but can you use this funding option to keep your cannabis business afloat? Perhaps surprisingly, the answer is yes.
Learn about your eligibility and how to secure funding for your cannabis company.
Understanding the Employee Retention Tax Credit (ERTC)
The Employee Retention Tax Credit (ERTC), or Employee Retention Credit (ERC), is a part of the Coronavirus Aid, Relief and Economic Security (CARES) Act passed in March 2020. During that time, businesses were forced to shut down to contain the spread of the coronavirus. The ERTC program was designed to provide for employee wages during this period.
Is the ERTC program still available? Yes. Small-business owners may still apply for ERTC loans. That includes cannabis companies, many of which were shut down as nonessential businesses during the height of the pandemic.
The credit amount is based on your qualified wages. To determine your qualified wages, you’ll need to calculate the amount of time your business was suspended because of governmental orders. Alternatively, you can use the actual amount of loss as follows:
- For 2020, a quarter where gross receipts were less than half of 2019
- For 2021, a quarter where gross receipts were less than 20% of 2019
An ERTC loan can be used to cover all payroll costs during these periods, including wages and healthcare coverage.
It’s also important to distinguish the ERTC program from the Paycheck Protection Program (PPP), which was also aimed at assisting businesses during the pandemic.
PPP loans were exactly that — financial aid sent to business owners as an advance payment for their payroll expenses. PPP loans had to be paid back. ERTC loans, on the other hand, are a type of tax credit and don’t have to be repaid.
Financial Challenges Faced by Cannabis Companies
Pandemic aside, cannabis business owners face challenges that are unique to their industry. Because the legality of cannabis varies on a state-by-state basis, banks and traditional lenders haven’t provided financing to cannabis businesses.
But the pandemic created additional challenges for cannabis business owners.
For instance, cannabis companies were excluded from the Paycheck Protection Program. While other businesses received advance payments from the government to retain their workers, cannabis businesses had to find funding elsewhere or dip into their own reserves.
Cannabis companies are still eligible for ERC/ERTC loans. This program offers alternative financing for cannabis businesses impacted by the 2020 lockdown. And because ERTC loans are a tax credit for money you’ve already spent on payroll, you can use your refund check for any business purpose you choose.
How Cannabis Companies Can Claim ERTC Relief
ERTC funding is available to any business that paid qualified wages to any or all of its workers between March 12, 2020, and Jan. 1, 2022. The ERTC loan can be used for any business that meets any of the following criteria:
- Was shut down by government order during 2020 or the first three quarters of 2021
- Experienced a qualifying decline in gross receipts during 2020
- Experienced a qualifying decline in gross receipts in the first three quarters of 2021
- Qualified as a recovery startup business during the third or fourth quarters of 2021
Once you determine your eligibility and calculate your qualified wages, you’ll need to file Form 941-X with the IRS. You’ll report qualifying earnings using this form.
You’ll also carry any unused tax credits forward to succeeding quarters and years, and you’ll claim a refundable tax credit if you file Form 941 on your income tax return for the following year.
Advantages of ERTC Loans for Cannabis Companies
Cannabis entrepreneurs can take advantage of ERTC loans as a business finance strategy. An ERC tax credit is intended to compensate you for the money you would have already spent on payroll costs. You can use the check you receive from the ERTC program to fund other areas of your business.
Existing business owners can use an ERTC loan to generate much-needed cash flow. The credit provides the necessary funding to purchase additional equipment, expand inventory or make other major purchases to expand operations.
This is important, as cannabis companies typically have limited funding options. The ERTC loan can be another source of working capital that can fuel your business and help you grow.
That doesn’t just benefit you. It’s also good news for your employees, who otherwise would have lost work and wages during the pandemic.
The Bureau of Labor Statistics reports that over 6 million Americans found themselves unable to work because of pandemic closures. The ERTC program can help you retain your valued workers for the long haul.
What You Need to Apply for ERTC Loans
Keep in mind that business owners can apply for ERTC loans for up to three years after the conclusion of the eligibility period. This means that businesses can apply for the ERTC program through January 2025, but it also means you’ll need to act quickly to claim the tax credits.
To apply, you’ll need to download and complete Form 941-X, Amended Quarterly Payroll Tax Return, with the IRS. The document will help you report your qualified wages based on gross receipts during the periods outlined above.
Some business owners may use a payroll processing service that makes filing for the ERTC even easier. If so, your payroll processor — or even your software — may offer an integrated solution to make the process even easier.
You can also improve your chances of success by retaining supporting documentation to demonstrate that you retained workers during the qualifying period and paid wages and/or healthcare benefits.
Keep Your Business Moving Forward
Keeping America employed is no easy task.
If your cannabis business retained workers during the height of the pandemic or shortly beyond, you’ve done something truly commendable. But you also need someone to support you. ERTC loans serve to ensure that your business is appropriately compensated for the wages you paid during the government shutdown.
For cannabis companies, that can be a valuable financial benefit. Because cannabis entrepreneurs were excluded from PPP loans and can only receive funding from nontraditional lenders, the ERTC program offers a reliable funding opportunity that can be used to support and grow your business.
The steps outlined above can help you take full advantage of the program and keep your business moving in the right direction.
Frequently Asked Questions
Q: Who qualifies for ERTC?
Businesses that employed workers during 2020 or 2021 can qualify for ERTC, provided they saw full or partially suspended business operations because of a government order or can demonstrate that they’ve experienced a significant decline in gross receipts compared to the same quarter in 2019.
Q: Is ERC a loan?
Despite their somewhat misleading name, ERTC loans technically aren’t loans — rather, they’re a type of tax credit.
ERTC loans are aimed at businesses that would have already covered payroll expenses during the pandemic and are now eligible to receive a credit. As such, they don’t need to be refunded, and the funds can be used for any current or future business expense.
Q: When does ERTC end?
Business owners can continue applying for the ERTC program for three years following the end of the qualifying period on Jan. 1, 2022, which means the program will remain open for new applicants until Jan. 1, 2025.
ERTC Intake Form
ERTC Intake Form