An SBA Boo-Boo? This Cannabis-Facing Company Got A $50,000 PPP Loan. It Says It’s Not The Only One

Was it a Small Business Administration error? A bank that finessed an application for a prized customer? We’ll never know. But in any case, MassReport, a technology company with ties to the cannabis world, got a $50,000 Personal Protection Program (PPP) this month.

And not only has MassReport’s chairman and CEO gone public with that news; he says other cannabis-connected companies also got loans. “This is one of the hottest topics in cannabis that no one wants to talk about,” declares Isaac Dietrich.

His own notice of acceptance arrived by email May 3. “We were notified via email on Sunday,” Dietrich recalled during a phone interview. “I was ecstatic, as the PPP loan enabled us to meet our obligations to our employees” – MassReport has five of them. “And they, in turn, were able to support their families, cover medical bills and pay rent.”

All well and good, but did that PPP loan follow the rules? The Payment Protection Act was authorized in April under the CARES Act and is administered by the Small Business Administration. The program provides small businesses with funds to pay payroll costs for up to eight weeks during the current COVID-19 crisis. And, in most cases, recipients will see those loans forgiven.

Eligibility criteria, however, are murky. Banks are reluctant to help small cannabis companies file applications because of cannabis’s Schedule I status under the Controlled Substances Act (hemp being an exception). In addition there’s the SBA Policy Notice of April 2018 on what businesses can get federal loans.

According to that notice, businesses that cultivate and sell cannabis products are “no’s.” Also ineligible, the SBA announced, is any “indirect” cannabis business that has “derived any of its gross revenue for the previous year: from sales of products or services to direct marijuana businesses.

MassRoots might be seen as one of those indirect businesses. It doesn’t touch the plant; what it does do is sell an app that enables consumers to rate and review cannabis products. Those products are detailed on the site, with occasional links to their manufacturers.

But that’s just a small portion of his business, Dietrich says; it’s about 3 percent of MassRoots’ revenues. “We’re a technology and media company,” the CEO explains, which derives the lion’s share of its income from institutional investors – the company is public – and from Amazon.

Amazon pays MassRoots a 5 percent commission for every customer sale it chalks up due to a product that customer saw on Dietrich’s site, and purchased. Affiliate links are another source of Amazon-related income.

This profile information was well documented in his company’s PPP application through the Bank of America, Dietrich says. “The informal guidance that a lot of financial institutions and law firms are relying on is the percentage of your revenue that comes from cannabis,” the CEO says.

That “3 percent” revenue figure takes means the SBA restrictions don’t apply, he says.

“Based on the advice of legal counsel, I felt that I could make the certifications and representations necessary to obtain the PPP loan in good faith,” Dietrich says. He acknowledges that his company’s $10 million in deposits to Bank of America over the past two years probably won MassRoots special attention from that financial institution, which processed the PPP loan. But nothing was hidden, Dietrich says.

His position that he deserved that PPP loan goes beyond that mere 3 percent of cannabis business. The SBA’s policy overall makes little sense, Dietrich argues. “Nearly ever major company in America generates some form of revenue from the cannabis industry,” he argues: “the utility companies, internet companies, airlines, hotels, law firms, accounting firms.

“So, if everyone who got $1 from the cannabis industry can’t get a PPP loan, no one would qualify.”

Asked about other cannabis-related companies receiving PPP loans, Dietrich doesn’t hesitate. “Yes, about 25 [got the loans], and none of them want to talk on the record … they don’t want to draw attention to it.”

Those other, “indirect” recipients include multiple media companies, supply chain companies and “one of the oldest legalization organizations working since the 1970s,” Dietrich says.

The calls he’s received, he adds, have been divided. “Half the people were [saying], ‘Why are you bringing attention to this? Everyone’s getting money, and you’re bringing attention.’

“The other half of the people were really supportive, saying, ‘This is gonna lead to dozens, if not hundreds, more companies applying, [getting loans] and injecting serious capital into every corner of the industry.’”

That’s an important reason why he’s been talking about his loan, Dietrich says. Of course, there’s the fact that he has to divulge the loan, as the CEO of a public company. But he also wants to advance the legalization argument overall. “I think it’s a milestone in helping move the industry forward,” Dietrich says, of his openness. “I’ve never heard of a situation where an SBA loan has gone to a company as close to the cannabis industry as ours.

“I think this is a monumental moment for the entire industry.”