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Law360 (May 5, 2020, 9:48 PM EDT) -- Colorado marijuana social media company MassRoots, which told the SEC last year that it had just over $2,600 in cash, announced Tuesday it has received a $50,000 loan under the federal Paycheck Protection Program, despite the program administrator's policy banning marijuana businesses from accessing the coronavirus stimulus funding.
It's a sign that bailout money may be accessible to some businesses involved with the marijuana industry, depending on how banks, which actually award the loans, evaluate a business's cannabis connections.
MassRoots, which is an online community where marijuana users can connect and share reviews of strains, received the loan on May 3 from Bank of America, according to documents reviewed by Law360.
Isaac Dietrich, MassRoots' CEO, told Law360 that his business is a media company focused on marijuana, but it has no actual contact with the plant or its products. Last year the company got the vast majority of its funding from institutional investors, deriving just 3% of its cash from cannabis businesses, Dietrich said. That cannabis revenue was low enough that MassRoots' corporate counsel at Sheppard Mullin Richter & Hampton LLP was comfortable applying for the loan.
Dietrich said he thinks that 3% figure was also low enough that Bank of America was OK with it.
A Bank of America spokesman said the bank doesn't comment on its clients.
"Based on their advice, the facts of MassRoots, [and] the situation, I felt it was my responsibility to make sure our employees got paid," Dietrich said.
He has already used some of the money to pay MassRoots' five employees and some of the company's rent, he said. The rest will be used for future payroll.
The funding, which was part of the federal Coronavirus Aid, Relief, and Economic Security Act, comes with a 1% interest rate but could be forgiven entirely if it is used to cover certain payroll and rent costs.
These economic stimulus funds have been essentially off-limits to the state-legal marijuana industry as it faces down the coronavirus pandemic's economic fallout.
The Small Business Administration, which oversees the PPP loans, has said that marijuana businesses are not eligible for this funding because marijuana remains illegal under the Controlled Substances Act. But the SBA has also indicated that the ban extends to "indirect businesses" that derive any part of their funding from plant-touching marijuana companies.
A spokeswoman for the SBA reiterated that the loans are not available for businesses engaged in illegal activity, which includes businesses "that receive revenue from marijuana-related activities or that support the end-use of marijuana."
Companies dealing in hemp, which is federally legal, have been able to take advantage of the coronavirus bailout, however. They include some of the country's biggest CBD companies, like cbdMD, which received about $1.5 million through the PPP program, and CV Sciences, which received just under $3 million, according to public filings.
By comparison, the $50,000 is a fairly small cash infusion for MassRoots. The company, which is listed on the Pink Open Market, said in a September U.S. Securities and Exchange Commission filing that it had just over $2,600 in cash on hand and about $25 million in total liabilities.
It derived funding from the sale of preferred stock, warrants, convertible notes, advances, the exercise of warrants and the sale of assets, it said in the filing.
"The company does not have cash sufficient to fund operations for the next fiscal year," it said.
MassRoots' name made headlines in April after the SEC settled a lawsuit against a group of investors who allegedly bought the company's stock cheaply and then pumped up its trading volume before selling it off.
Dietrich said the company was not party to the SEC's complaint and that it had no impact on his business.
He's in the process of moving MassRoots' headquarters back to Denver from Los Angeles, where he said he will launch a rewards program for dispensaries.
--Additional reporting by Brian Dowling. Editing by Jack Karp.
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