Reefer & Recovery: Possible SBA Disaster Loan Issues

As states and tribes legalize marijuana, are there any problems that emergency managers face? Regardless of personal/political opinions, are there tertiary impacts we in the profession should be thinking and advising our political leaders about?

As states and tribes legalize marijuana, emergency managers are faced problem of controlling the impact of a disaster without the assistance of federal programs that are heavily relied upon. The Emergency Management Cycle is the standardized method emergency managers use to understand how to approach their job. Each of the cycle’s four phases present a unique problem for consideration concerning marijuana legalization. This article is second in a series of four articles related to marijuana legalization and potential issues related to Emergency Management. This article asks whether or not legalized marijuana grow operations and dispensaries are eligible for Disaster Loans from the U.S. Small Business Administration.

Note: This article does not state a position on the legalization of marijuana and merely identifies potential issues for emergency management as it is legalized at state and tribal levels. This article is not legal advice! Consult with a licensed attorney in your jurisdiction!

Background: After the President issues a federal disaster declaration, the U.S. Small Business Administration (“SBA”) can offer low-interest loans to businesses and individuals. Businesses can qualify for up to $2 million in low-interest physical disaster loans to cover damage to their business. Further, small businesses, and agricultural operations who suffer an economic impact from a disaster can apply for the Economic Injury and Disaster Loan program (“EIDL”).

Hypothetical: California just experienced its first tsunami from a 8.7 magnitude earthquake centered around the Cascadia subduction zone (predicted to be the most dangerous part of the San Andreas fault). You represent a legalized medical marijuana grower in Northern California. The grow operation lost everything to the tsunami, including: plants, equipment, inventories, and facilities. The owner wants to know if she can qualify for either a Physical or EIDL SBA loan to get everything started again. What do you advise her?

Answer: Apply, but don’t expect to get a yes. Under 13 CFR § 123.201(d), illegal activities are generally ineligible for both disaster loan programs. However, the SBA encourages everyone to apply for a disaster loan simply because things can change depending on the disaster. Upon receiving the denial letter from the SBA, the owner will have six months to submit a written request for reconsideration of the application by a different SBA loan officer. If the request is denied for a second time, the owner will have at a minimum 30 days to appeal to the SBA’s Office of Hearings and Appeals. An additional 60 days may be granted if the second denial letter states new reasons for denying the application. At any one of these points the argument could be made that the grow operation was legal. There are no general cases on point regarding what “concerns” are illegal and the statute is vague enough, making the approval of a grow operation’s application subject to the discretion of an SBA loan officer or Administrative Judge.

Next Step: Though immediate reaction might be to lobby for some sort of policy change, doing so might create more hurdles for marijuana businesses. Currently a single sentence in both statute and operating procedure guide loan officers on marijuana businesses. Advocating for policy reform independent of rescheduling efforts may lead to more barriers. Lack of formal guidance enables owners to make better arguments during reviews and hearings.

As states and tribes legalize marijuana, are there any problems that emergency managers face? Regardless of personal/political opinions, are there tertiary impacts we in the profession should be thinking and advising our political leaders about?

As states and tribes legalize marijuana, emergency managers are faced problem of controlling the impact of a disaster without the assistance of federal programs that are heavily relied upon. The Emergency Management Cycle is the standardized method emergency managers use to understand how to approach their job. Each of the cycle’s four phases present a unique problem for consideration concerning marijuana legalization. This article is one in a series of four articles related to marijuana legalization and potential issues related to Emergency Management. This article asks whether or not legalized marijuana grow facilities need to coordinate a pre-plan with their local fire department to better avoid possible tort liability.

Note: This article does not state a position on the legalization of marijuana and merely identifies potential issues for emergency management as it is legalized at state and tribal levels. This article should not be considered legal advice. Consult with an attorney

Background: Marijuana grow facilities often pose significant hazards to firefighters. These hazards stem from complex ventilation, facility layout, and electrical wiring (often violating codes). Despite training, these hazards become nearly impossible to avoid given the existing complexities of a structure fire. This is compounded by the mixture of THC and chemicals used in cultivation giving emitted smoke a sickening effect, rather than giving a “high”.

Hypothetical: The current legislation to legalize Marijuana in Wisconsin is approved. A year later there is a fire at an indoor grow facility in Madison. The Madison Fire Department and HAZMAT respond. The facility is partially saved; however, four fire fighters are seriously injured and two of the apparatus’ (fire truck) were damaged and attributed to code violations at the indoor grow facility. Will the firefighter’s and fire department separate civil claims against the owner succeed?

Answer: While the firefighters may likely succeed the department may have issues. The common law firefighter rule generally bars a firefighter’s negligence claim. However, in Clark v. Corby, the Wisconsin Supreme Court found a valid negligence per se claim based the violation of local housing ordinances and hidden hazards. 249 N.W.2d 567 (Wis. 1977); accord Peak v. Cent. Tank Coatings, Inc., 606 F.App’x 891 (10th Cir. 2015). Here, the hidden hazard exception will likely allow the firefighters to succeed. So long as the strict guidelines are followed, Wisconsin statute allows agencies seek reimbursement from a property owner whose negligence caused a HAZMAT incident for actual, reasonable, and necessary expenses included involving the release or potential release of HAZMAT. The issue comes in with the tedious processing requirements. If not strictly adhered to, the agency might forfeit reimbursement.

Next Step: Though sometimes annoying, it is imperative for legal marijuana growers to comply with all building and zoning ordinances at all times. Further, facility owners should work with the local fire department and allow a “pre-plan” for the department’s emergency response to the facility.

Category Archives: Marijuana Legalization