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In August 2020, Congress established a new opportunity zone for real estate investors and business owners with the designation of Hemp Opportunity Zones. As with other opportunity zones, these come with significant, long-term tax advantages to the investor.
As the economic damage from the coronavirus pandemic piles up, U.S. cities and states are set to face significant lost revenue given the loss of business activity.
But, as DataTrek Research’s Jessica Rabe writes in a note, “there’s a simple and effective solution for states and cities to help cover their huge budget shortfalls after the COVID-19 pandemic subsides: legalize recreational sales of marijuana.”
New York, the epicenter of COVID-19 cases in the U.S., might see a revenue drop of $4 billion to $7 billion compared to what it was expecting, according to the state comptroller. With a budget of $87.9 billion, that’s significant.
“We’ve been thinking a lot about how life will change post-virus, and one big difference will be that state and local governments are going to encounter large unexpected tax receipt shortages,” Rabe wrote. “That’s particularly true when it comes to sales and income taxes amid stressed consumer balance sheets and massive layoffs. And unlike the Federal government, states can’t print unlimited amounts of money.”
Legalization of cannabis for adults, Rabe points out, could be a really easy way to shore up tax basis without driving people out of state, as raising income tax might do. Already it has been successful at raising “hundreds of millions of dollars annually in states like Colorado,” she said. There are currently 11 states with legalized recreational cannabis and another 15 that have decriminalized the drug in one way or another.
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The Dow Jones Industrial Average tumbled 1,464.94 points, or 5.9%, to close at 23,553.22. The 30-stock average closed in a bear market, down more than 20% below the record close set only last month and putting to end an expansion that started in 2009 amid the financial crisis.
The S&P 500 ended the day 4.9% lower at 2,741.38 and just short of a bear market. The Nasdaq Composite fell 4.7% to 7,952.05 and was also about 19% below its all-time high. A 20% decline is considered a bear market on Wall Street. However, most investors don’t recognize it officially until an index does it on a closing basis.
“We can see the panic in the equity market,” said Jerry Braakman, chief investment officer of First American Trust. “The big question for most people is, are we at the bottom yet? I think we’re only about halfway there.”
Losses intensified on Wednesday after the World Health Organization declared the outbreak an official global pandemic. The number of coronavirus cases around the world totaled more than 100,000, according to data from Johns Hopkins University. In the U.S. alone, more than 1,000 cases have been confirmed. This increase in cases added to fears of a global economic slowdown and have increased calls for government intervention.
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Just two months into adult-use legalization and Illinois dispensaries are selling more than a million dollars of legal cannabis—per day.
‘Today marks another milestone in the successful launch of Illinois’ legal cannabis industry.’Toi Hutchinson, senior advisor, Governor Pritzker for cannabis control
That number is based off revenue from steep taxes on legal sales. The state reported $10 million in cannabis tax revenue for the month of January, Gov. JB Pritzker’s office reported Feb. 24. The report shows how legalization is off to a roaring start in the Land of Lincoln.
Robust marijuana sales started Jan. 1, 2020 to tens of thousands of state residents and tourists who braved freezing pre-dawn temperatures and hours-long lines to smoke a piece of state history.
Long lines continued for days as flowers and vapes supplies quickly ran low. Some stores closed to recreational consumers, but kept serving medical patients. The result? Over $39 million in taxed, tested cannabis transactions; instead of street sales. Those sales generated $7.3 million in cannabis tax revenue, plus $3.1 million in retail sales tax revenue for the month of January.
After taxes pay for regulators, the revenue goes to communities impacted by the war on drugs, as well as anti-drug programs, and mental health programs. Illinois built on the work from 10 prior legalization states, said Toi Hutchinson, senior advisor to Governor Pritzker for cannabis control.
“Today marks another milestone in the successful launch of Illinois’ legal cannabis industry. Our goal has been to build the nation’s most socially equitable program that includes new opportunities for the communities most harmed by the failed war on drugs. Revenue raised in this first month will soon begin flowing back into those communities to begin repairing the damage done by the failed policies of the past and creating new opportunities for those who have been left behind for far too long,” said Hutchinson.
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Amsterdam’s Stock Exchange was founded in 1602, and the Dutch East India Company was the world’s first listed public company.¹ While the number of stocks trading on public exchanges around the globe increased over the next four centuries, fewer companies are going public these days. There were 486 U.S. initial public offerings during 1999, but only 190 such offerings in 2018.² In fact, the total number of listed U.S. companies has fallen by over 40% since the late 1990s.³
Source: Cerulli, 2019.
Meanwhile, the number of private equity-backed companies is on the rise and now dwarfs the number of companies listed on U.S. public equity exchanges—a trend that’s indicative of what’s happening around the world. Globally, there were 9,000 private equity deals done in 2018, compared with just 1,700 in 2001.⁴ The growth of private equity assets under management has been brisk, too, especially in Asia, which now accounts for one-quarter of the global private equity market.⁵
Source: McKinsey, 2019.
Unlike a typical public equity shareholder, who has no influence on how a corporation is run, private equity funds often take controlling positions in portfolio companies and become actively involved in setting the strategic direction of these companies. Board control ultimately represents an owner’s call option on management regime change. Even if the owner never has cause to exercise the option, the arrangement tends to align executive teams’ interests with those of the business owners, encouraging all involved to focus exclusively on the opportunities and risks most crucial to the long-term success or failure of the business. Whereas their publicly traded counterparts are frequently plagued by distraction and Wall Street’s fixation on short-term results, well-run private equity-backed companies tend to benefit from an incentive structure and timeline that encourages a management team to deploy its best thinking and energies on the two or three most meaningful objectives likely to drive long-term value creation. Private equity is about pairing talented investors with exceptional management teams and using their collective wisdom to get the job done together.
Source: Cerulli, 2019.
There are a number of factors behind the shift from public to private capital, yet we can point to two changes in U.S. law that played a role in a multi-year trend that continues today. The Sarbanes-Oxley Act of 2002, for example, a response to the wave of accounting fraud scandals epitomized by Enron’s collapse, made reporting requirements for U.S. public companies more onerous than they had been before. A decade later, the U.S. Jumpstart Our Business Startups (JOBS) Act, a different type of law designed to address a different problem, allowed private companies to have up to 2,000 shareholders (an increase from only 500) before being required to disclose their results. Both Sarbanes-Oxley and JOBS had unintended knock-on effects, providing less incentive for companies to go public and more incentive for them to remain in, or return to, private hands. It’s particularly true for capital-light, R&D-intensive firms that wish to keep their proprietary intellectual capital out of view of competitors and the public spotlight alike. And the global economy is seemingly shifting such that most companies now see their intangible assets as more important than their tangible assets.⁶
Global central banks have also helped fuel the transition in recent years, as low interest rates have made it easier for private equity investors to transact with borrowed funds. More than a decade after the depths of the global financial crisis, policy rates remain at or near record lows around the world, and an abundance of relatively cheap debt with issuer-friendly terms is still available to finance acquisitions.
While legislative, macroeconomic, and monetary policy developments have helped private equity capital become a more prominent source for financing global commercial enterprise, the returns on that capital have helped raise the profile of private equity as an investment asset class around the world.
Some of the most sophisticated institutional investors have been shifting portfolio allocations toward private equity and away from public equities for years. For example, the dollar-weighted average allocation of all U.S. higher education endowments to private equity more than tripled (from 3% to 10%) between 2002 and 2018, while the allocation to domestic public equities declined by over half (from 37% to 16%) during that period.⁷ Today, roughly 60% of private equity investors are university endowments, charitable foundations, and employee pension funds.⁸
So far, the allocation shift toward private equity has worked out in favor of these institutions and their beneficiaries. Global private equity net asset value has grown by a factor of 7½ since 2002, compared with a 3½-fold increase in public equities’ market capitalization over the same period.⁴ Following this impressive outperformance run, private equity may still represent the brightest light in a dimming universe of investment prospects hampered by today’s high asset valuations and low yields. The reason is that, relative to listed public equities, regression analysis reveals that private equity performance has been driven more by alpha and less by beta, “and equally as important, is that alpha is generally less correlated than beta.”⁹
Source: Cambridge Associates, eVestment, Bloomberg, KKR, 2019.
Whereas the current beta embedded in public markets’ capitalization is by definition skewed toward past winners, we believe today’s private equity deal counts are more indicative of future prospects. Investors around the world have taken notice. That’s likely one reason the recent growth of private equity assets under management has been so rapid, not only in North America and Europe, but also in the Asia-Pacific region, now home to a quarter of the world’s private equity market.⁵
The illiquidity premium—the reward investors earn for bearing the risk of holding assets that can’t be easily traded—represents a meaningful prospective source of private equity alpha. It may be an attractive feature to institutional investors with long-dated liabilities, such as insurers and pension plans. The largest U.S.-based investor in private equity, a public pension plan in California, isn’t satisfied with its existing allocation to the asset class. “We need private equity, we need more of it, and we need it now,” according to its chief investment officer.³ Even if private equity isn’t poised to match its past results, many investors still view it as the most promising asset class on offer today. In fact, 95% of a representative sample of 400 institutional investors surveyed in the United States plan to either increase or maintain their long-term allocations to the asset class.³
Source: Cerulli, 2019.
Flexibility and patience can be additional sources of alpha for private equity investors who carefully choose portfolio companies offering the potential of multiple ways to win, and being able to pivot as developments warrant can prove highly valuable. Characteristics of promising investment opportunities may include companies with:
While these characteristics are good indicators of a successful business, overbidding for such traits is an ever-present pitfall. If a private equity sponsor pays too much for its portfolio companies, it may struggle to create value for investors. Consequently, it makes sense to look for managers who have good judgment about the inherent value of a particular business and extensive experience executing strategies that would make the business more profitable—and, by extension, more valuable.
Although the industry is maturing, we continue to see private equity participants get criticized for behaviors that were more prevalent during the industry’s infancy, evoking a popular narrative rife with corporate raiders, hostile takeovers, and junk bond-financed mergers and acquisitions. Barbarians at the Gate (1989), Den of Thieves (1992), and The Predators’ Ball (1988), and other books relayed the most egregious examples of the day’s dubious practices.
In the late 1980s and early 1990s, many industry firms spearheaded deals by contributing equity capital representing only 10% to 20% of the entire enterprise value, borrowing the rest of the funds required to close the transaction. This left many private equity-backed companies overleveraged and with little financial flexibility to weather a downturn in the economic cycle. The business failures, bankruptcy filings, and personnel reductions that inevitably followed continue to haunt the industry’s reputation today.
Private equity has come a long way since then. Rather than relying on abrupt practices, such as asset stripping and employee layoffs, to cut costs and turn a quick profit, private equity investing has become more focused on driving growth, improving competitive positioning, and focusing on sustainable, long-term value creation. We’re seeing many portfolio companies scaling their businesses, executing thoughtful merger-and-acquisition plans to drive top-line growth, and generating value where it didn’t exist before. In our experience, the more recent reality debunks the popular narrative of frequent bankruptcies, unmet pension obligations, and job destruction—stories of high-profile deals gone awry that marked private equity’s early days. Further, in the current climate, it’s not uncommon for owners to contribute 40%, 50%, or even 60% of the total enterprise value of an acquired business in their own equity capital, which lessens the need for borrowed money and increases the financial flexibility of a firm to negotiate the next recession, whenever it arrives.
Our experience provides a counterpoint to the negative private equity narrative. In many ways, private equity has become a driver of efficient, responsible, and sustainable capital allocation, helping investors, companies, and their communities. While this may be oversimplifying the ways in which private equity firms add value to portfolio companies, we’ve observed countless examples in each of the following generic strategies that have created value for investors in private equity funds.
Source: Cerulli, 2019.
Today, private equity helps align the interests of owners and management, helps the capital markets operate more efficiently, and spurs productivity growth. Private equity continues to evolve and provide an incubator for ideas that lead to accelerated business growth, new ways to finance businesses, and employment growth—big thinking that contributes to better living standards more broadly. Private equity investing can continue to build this momentum as a growing force for good and play a positive role in the years ahead, contributing to the collective betterment of an interconnected web of company owners, managers, employees, pensioners, and communities throughout the global economy.
As more states approve medical cannabis and legalize recreational cannabis, the amount of data proving that cannabis dispensaries increase local property values continues to pile up.
Numerous studies conducted by researchers, companies, and even real estate associations not only show that property values increase when dispensaries open nearby but also that property values jump when cannabis is legalized at the state level – long before legal retail dispensaries open.
Despite arguments to the contrary, the cannabis industry bolsters commercial and residential real estate investments. The numbers speak for themselves.
The Western Economic Association International published a study in its July 2019 Contemporary Economic Policy journal that found property values within a half-mile radius of a cannabis dispensary increase by 7.7%, and the value drops as the distance from the dispensary increases.
Also in 2019, the team at Clever Real Estate conducted a deep analysis of housing prices and the relationship between property values and cannabis dispensary locations. They discovered that between 2014 and 2019, cities which allow cannabis dispensaries (medical and/or recreational) experienced greater increases in home values than cities where cannabis is illegal. Clever Real Estate found that the effect brings up the entire city’s home values at a rate higher than the national average.
On August 19, 2019, the National Credit Union Association (NCUA), a federal agency that regulates, charters, and supervises federal credit unions, released updated guidance on federally-backed credit unions working with hemp-based businesses. The guidelines clarify that credit unions are permitted to offer financial services, including loans, to businesses dealing in the realm of hemp or hemp-based products such as manufacturers, distributors, shippers and retailers, among others. This announcement comes shortly after reports of hemp-based businesses losing access to financial services and credit card processing in recent months.
For more visit Cannabis Business Executive
The marijuana industry is booming in the United States.
From the $52 billion in sales the industry posted to the 76% increase in cannabis jobs this year, there are plenty of statistics to show marijuana’s startling contributions to the U.S. economy.
Marijuana initiatives have swept through state legislatures in recent years. Recreational marijuana use is legal in 10 states, while medicinal marijuana is legal in 33. Illinois became the most recent state to weigh the topic when Gov. JB Pritzker introduced a bill to legalize the drug on Saturday.
Now, the industry is showing no signs of slowing down.
Click ahead for eight interesting facts about the US marijuana industry.
Marijuana Business Factbook estimates the legal-marijuana industry’s economic impact in the US was between $20 billion and $23 billion in 2017. It estimates the economic impact could reach as high as $77 billion by 2022.
Those numbers are comparable to the GDPs of Idaho and West Virginia, which were both a tick over $77 billion in 2018, according to the Bureau of Economic Analysis. And it’s worth more than the GDP of nine states, including Delaware, Alaska, and both North and South Dakota.
New Frontier Data, a cannabis market-research and data-analysis firm, estimates that the US cannabis industry employs at least 250,000 people. And those are just the jobs that are directly involved with handling marijuana plants – others in the industry are harder to quantify, a New Frontier economist told the Associated Press.
Compare that to the size of one of the staple blue-collar industries, coal mining, which employed 52,300 in 2018.
Another study estimated the marijuana industry would grow to at least 330,000 jobs by 2022, a higher number than the 268,000 employees at U.S. steel and iron mills.
The median salary in the marijuana industry salary was $58,511 in 2018, while the median salary for U.S. workers as a whole was $52,863, according to Glassdoor data. That’s a difference of 10.7%.
Investors poured more than $10 billion into the North American marijuana industry in 2018, according to the Associated Press. That’s twice the total amount invested in the previous three years.
And experts project that number will shoot up to $16 billion this year.
Researchers at Colorado State University-Pueblo found last year that in 2016, the marijuana industry had an economic impact of $58 million in Pueblo County, according to the Denver Post. Added costs from the industry, like law enforcement and social services, totaled $23 million, meaning the county made out with $35 million that year.
That’s not a bad profit, considering Pueblo County is home to fewer than 200,000 residents.
Between 2001 and 2010, there were more than 8 million marijuana arrests in the U.S., according to American Civil Liberties Union data.
To enforce those marijuana laws, the U.S. spent approximately $3.6 billion on law-enforcement costs.
The US had an estimated $52 billion market for marijuana in 2016, according to a report from Arcview Market Research.
But legal marijuana sales made up just $6.2 billion of that in the eight states with fully legalized marijuana and 28 medical marijuana states.
The rest of the nearly $46 billion was comprised from sales on the black market, meaning 87% of marijuana sales that year were illegal.
Marijuana Business Factbook estimates there were approximately $6 billion worth of legal-marijuana sales in 2017, which would be more than the combined sales of organic produce ($4.8 billion) and Oreos ($700 million).
The estimated total demand for marijuana, which is higher than $50 billion, was more than the $36 billion of video games and $19.9 billion of doughnuts sold in 2017.
Fore more visit Business Insider
By Paul R. La Monica • CNN Business –
April 20 has become the unofficial holiday for marijuana users. So now’s a good time to look at the red hot sector. Cannabis stocks are soaring as the business goes legit.
For decades, though nobody was really sure why, April 20 has been the unofficial holiday for marijuana users and a joke by and about them. Now, though, it’s also a reminder of how quickly marijuana is moving from illegal and a joke to a multi-billion dollar legal business — and a good time for us to take another look at how well cannabis stocks have been doing.
Publicly traded cannabis companies have reported strong sales since Canada legalized pot last October and several U.S. states voted to approve recreational and medical marijuana use.
From L.A. Biz –
Los Angeles cannabis company Vertical Cos. said it’s raised $58 million in a Series A round of financing.
The company said it’s now raised a total of $65 million in the past five years and is getting ready to spin off its hemp-based cannabidiol (“CBD”) assets — Vertical Wellness — later this year.
Investors in the latest round of financing include cannabis industry private equity fund Merida Capital Partners. Other investors, Vertical said, include “numerous global business leaders, including significant players in the alcohol distribution and brand space.”
