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With the rise of the cannabis industry in the Coachella Valley, many would-be investors are wondering whether to jump into the industry—and how/when to do so, if the answer is yes.

If you are entertaining the idea of investing in cannabis—specifically, the growth and cultivation of marijuana—there are a several important things to keep in mind.

How much do you want to invest … and how do you want to invest? The cannabis industry is growing and expanding at a rapid pace, and there are numerous levels and types of investments to consider, but the main question for investors is: Are you going to “touch the plant,” or get in as an “ancillary” business?

“Traditional investors do not want to touch the plant and are looking for ways to get into the industry without actually being in the industry,” said Michael Dickerson of EcoMaster Corporation, which is currently building the Coachillin’ Industrial Cultivation and Ancillary Canna-Business Park in Desert Hot Springs.

Dickerson said these types of investors are generally developers, landlords and builders—basically, investors in any business that helps address the challenges of the grower. He said investing in service industries that are risk-adverse makes for a good rule of thumb—because he predicts that 90 percent of growers will go belly up, while ancillary businesses will be less affected by shifts in the industry.

Why does he think growers are going to have such a tough time? State environmental approvals are difficult to get, and long-term sustainability will be challenged by water resources, water rights and environmental compliance.

Kenny Dickerson, also of EcoMaster, notes that many in the industry are unprepared for regulation; after all, they’re garage-growers who aren’t necessarily experts on business models … making ancillary businesses a wiser place to start for investors.

Greg Rutten, COO of Mochi Holdings Group in Desert Hot Springs, also said that cannabis is risky because it is an emerging industry.

“Most private lenders will only lend 50 percent of a construction (amount), so operators need to raise 50 percent as equity and will (often) give a piece of the company or stock in the company or a preferred investment rate,” Rutten said.

Rutten said potential investors should make sure any grow operator has the necessary licenses from the state and municipality where it’s located, and has landlord approval for cannabis use. As with any business, investors should also fully read the grower’s business plan and make sure the business model clearly addresses all aspects of the business. In other words: Potential investors need to do their homework to make sure they’re making a sound investment.

One final thing to keep in mind when considering investing in the industry is the instability of local and state authorities, who are scrambling to keep up with the new and growing industry. Katherine Dickerson, also of EcoMaster, echoed and emphasized Rutten’s point about making sure any marijuana business has all the necessary permits—because they’re incredibly difficult to get.

“The state is saying they are relying on (permits being issued at) the local level, but there are people at the local level making laws who are not in the industry and do not understand it,” she said. “(Investors need to) do their homework to ensure that what they are investing in is prepared to deal with the red tape as the industry morphs and becomes standardized and becomes more consistent. It is going to be a bumpy ride for the next five years.”

Robin Goins is a business consultant for DR.G Consulting and works extensively in the cannabis industry in the Coachella Valley. For more information, visit www.drrobingoins.com.

Published in Cannabis in the CV

The California cannabis industry is now in its second year of legalization—and excitement within the industry is building. Experts in the Coachella Valley have been diligently preparing their forecasts for 2019—so we decided to ask them what they’re expecting to happen.

One leader in the industry is predicting great things for 2019. Adrian Sedlin, CEO of Canndescent, which has a large grow facility in Desert Hot Springs, is expecting the industry to boom as legalization spreads globally.

Sedlin notes that in 2018, the adult-use cannabis market tripled in population size, and says that as the industry grows with adult use, so will production. He also thinks the political arena is looking better for legalization, as more political candidates are promoting federal legalization.

“Many critics argue that California made a mess of things in its first year regulating adult-use cannabis,” Sedlin said. “(The year) 2019 will prove far more prosperous for license-holders as operating a cannabis business without a license will finally become a felony.” 

The economic potential in the Coachella Valley is huge, considering the amount of open land and the potential for cannabis-industry growth here. Brent Buhrman, CEO of Nationwide Cannabis Funding and president of the Coachella Valley Cannabis Alliance Network, is predicting the industry in the valley “will see an explosion of growth as new cannabis development becomes vertical and operational.” Buhrman also expects real estate in the valley to hold its value, especially with many cannabis investors who were waiting for two things to happen that, well, just happened: the passage of the Farm Bill and the departure of Attorney General Jeff Sessions. These investors are “ready to play ball,” says Buhrman, “and the watchers are now ready to jump into the game.” Buhrman predicts the Coachella Valley will see a new wave of people and companies come forward as a result.

With the industry starting to mature, Sedlin does expect some—no pun intended—weeding out to occur. He foresees stocks changing drastically, and as a result, the “high-profile sackings” of two or three high-profile CEOs at publicly owned cannabis companies.

Other seasoned cannabis entrepreneurs see different transitions on the horizon. Eric Crowe, of Cathedral City-based Mystic Valley CBD, who has been on the forefront of the Colorado cannabis industry for the last 15 years, predicts Coachella Valley happenings will mirror much of what was seen in Colorado. Crowe is predicting a clearing in the industry, which will lead to legitimacy and credibility as well as a surge in canna-tourism. This surge, Crowe states, “will created unprecedented economic growth in the valley, which will include all ancillary business, such as construction, hospitality and all business trades.”

Crowe cautions that lessons learned from Colorado should be heeded as the Coachella Valley cannabis industry expands.

“All industry in the valley, in some way, will come to depend on the cannabis industry, and as it morphs and grows, oversaturation will happen,” he said.

As happened in Colorado, Crowe anticipates the quality and quantity of the goods in the market will reach capacity, which will result in price reductions and many companies closing as a result. Like Buhrman, he predicts this will allow a new group of players to come to the table. Crowe thinks some of the new business emphasis will be on medicinal uses for hemp, specifically 100 percent certified organic growth and production. He expects that the success of some within the industry will depend on new technology; for example, his company uses reverse-engineered sound-wave technology, which focuses on the DNA of the hemp plant in order to produce the highest level of CBD full-spectrum concentrations.

The economic outlook for the cannabis industry in 2019 and beyond looks very promising—but those in the industry will need to change along with the demands of the industry.

Robin Goins is a business consultant for DR.G Consulting and works extensively in the cannabis industry in the Coachella Valley. For more information, visit www.drrobingoins.com.

Published in Cannabis in the CV

After the November election, 28 states have now legalized marijuana in one way or another. Public opinion has never been stronger in favor of legalization—and this even includes a vast majority of police, according to a new Pew Research Center survey. (More on this in a bit.)

Unfortunately, presumptive Attorney General Jeff Sessions does not agree—and that could pose a serious problem for weed.

Of course, we know Sessions’ views on racial matters have been troubling, at best, over the years. A black assistant U.S. attorney named Thomas Figures once testified that, in addition to calling him “boy” on several occasions, Sessions thought Ku Klux Klan members were “OK, until (he learned) that they smoked marijuana.”

Let that sink in: The probable head of the Department of Justice once said the only problem he has with the KKK is that they smoke weed.

While it’s debatable whether Sessions’ views on race issues have improved over the years, it seems clear that Sessions remains firmly in the anti-marijuana camp.

"I think one obvious concern is that the United States Congress made the possession of marijuana in every state and the distribution of it an illegal act," Sessions said during his confirmation hearings. “If that's something that's not desired any longer, Congress should pass a law to change the rule. It is not much the attorney general's job to decide what laws to enforce. We should do our job and enforce laws effectively as we are able."

Seems like a pretty innocuous answer at first … but just what does "enforce laws effectively as we are able" mean? Many are taking this as an indication that he will enforce the federal ban until federal laws say otherwise.

This means the good done by the Cole memo may be in jeopardy. The Cole memo, the key Obama-era concession to state-legalization laws, was authored by then-Deputy Attorney General James Cole and issued by the DOJ on Aug. 29, 2013. It set different priorities for federal prosecutors that dictated a hands-off policy on prosecuting federal cannabis laws where local jurisdictions had legalized and regulated the plant. This effectively ended federal raids and interference in state-legal businesses.

In a quixotic quest to enforce an antiquated and wildly unpopular federal ban, and prop up a beloved-but-lost War on Drugs, Attorney General Sessions would have the power—and apparently the will—to reverse the Cole memo. Federal raids could resume, hamstringing a burgeoning industry. This is serious: Small businessmen could be jailed, with jobs lost and millions of dollars taken from municipal and state coffers. Large-scale grows like those approved in Desert Hot Springs, Coachella and soon Palm Springs would be prime targets. Cannabis businesses would again be subject to asset forfeiture (where authorities can seize property tied to a crime). The Drug Enforcement Administration’s insistence on keeping cannabis in the Schedule 1 club (making funds non-FDIC-insurable) has made investors nervous already. Under threat of asset forfeiture, big investors will quickly head north into Canada’s cannabis-loving arms. Cash-strapped cities like Desert Hot Springs would be left wondering what the hell happened.


OK, SO WE’RE A LITTLE CONFLICTED...

Meanwhile, the opinion of law enforcement at-large is now heavily in favor of legalization.

The day after Congress began the process to confirm Jeff “Good people don’t smoke marijuana” Sessions to the position of Top Cop in the U.S. (and yes, he said exactly that last April), the Pew Research Center released the results of a poll indicating that the majority of American police officers are in favor of some form of legalization.

The survey of 7,917 officers from 54 police and sheriff's departments, conducted from May 19 through Aug. 14, 2016, shows the opinion of Jeff Sessions is completely out of touch with that of the cop on the street.

The really astounding number is that 68 percent of police officers are in favor of legalization for at least medicinal use: 37 percent of officers polled support legalization for medicinal use only, while 32 percent are in favor of both recreational and medicinal legalization. While this isn’t quite as favorable toward cannabis as overall public opinion (49 percent for recreational and medicinal, and 32 percent for medicinal only), it’s a huge shift in a positive direction. Only 30 percent of police officers believe the plant should remain illegal, but that’s double the 15 percent of the general public. As with the public, support for legalization is stronger among younger officers.

This support for weed hasn’t stopped police from enforcing marijuana laws: In 2015, police made more arrests for marijuana possession than for all violent crimes combined.

If Sen. Jeff Sessions is indeed confirmed as attorney general of the United States, he could create a disaster that cripples the growth of an industry expected to triple in the next few years, with the new addition of California and other states to the legal market. He is a just-say-no-era anachronism who is completely out of touch with 21st century America.

All we can do at this point is hope Trump is a single-term president, and that four years isn’t enough time to do too much damage to a legalization movement that is finally finding real success and acceptance after so many decades of marginalization.

Tell the Senate to reject Jeff Sessions as attorney general. Find an online petition here.

Published in Cannabis in the CV

Cannabis legalization is sweeping the nation quickly by American standards, and industry growth has been rapid in states where cannabis has been legally accepted in one way or another.

The cannabis industry is projected to reach $44 billion per year in revenue by 2025. State budgets are being balanced in part due to tax revenues from the cannabis industry. Jobs are getting created locally, and potential marijuana businesses are looking with hope toward each state-legalization initiative on the horizon.

But even as states line up to reap the financial rewards of legalization, the continuing federal ban on marijuana may leave American startups scrambling to find the investment dollars needed once they get the green light on a state level.

One prime example of how federal foot-dragging on cannabis-law reform is inhibiting industry growth is Section 280E of the U.S. tax code. It prohibits the deduction of expenses related to controlled substances on federal tax returns. The means that cannabis businesses cannot deduct the basic business expenses allowed for any other retail, manufacturing or distribution business—even though the businesses are perfectly legal under state laws. One dispensary owner in Colorado estimates he pays the IRS an extra $600,000 a year because he is not allowed these deductions. That’s not a small chunk of change when you consider the exorbitant taxes already levied on cannabis businesses.

Issues like this, as well as the banking difficulties faced by the cannabis industry—federal law makes it very difficult for a marijuana business to even have a bank account—make the industry look like a less-than-safe investment. Rescheduling marijuana to anything but the Drug Enforcement Administration’s Schedule 1 would eliminate this hurdle, and would allow banking options and Federal Deposit Insurance Corporation coverage to the exploding industry.

Of course, there’s a hashtag for that: #Reschedule420, brought to you by DCMJ.org. That’s the organization that brought a 50-foot joint to the White House on April 2 of this year in protest of the president’s inaction on cannabis reform. (Get it? Reschedule 4/20?)

In a recent letter to Congress, the DEA hinted at rescheduling marijuana or (removing it from the schedules altogether) sometime this summer. We’ve heard that one before, but combine that with the administration’s recent approval of the first official testing for cannabis as a PTSD treatment, as well as massive shifts in public opinion, and there may be a ray of hope this time around. In addition to making cannabis research much more accessible to American companies, a change in DEA cannabis policy would remove most of the remaining hurdles to development of the cannabis industry nationwide: Section 280E would no longer apply to cannabis business, and banks would be able to fling their doors open to all those now-legit former narco dollars.

But in the meantime … here comes Canada.

Justin Trudeau, Canada’s liberal rock-star prime minister, has vowed to legalize recreational cannabis on a federal level in the Great White North—posthaste. This forward thinking provides an opportunity for more secure investment and less restrictive tax policy, and would allow banks to treat cannabis businesses as they do any other legitimate business. This offers cannabis investors another North American option in one of the fastest-growing industries in recent history.

In addition to the obvious business advantages Canada would enjoy over the United States, quick legalization would also put Canada years ahead of the U.S. in medical-cannabis research. This would allow Canadian companies to be first to market with breakthroughs in medical uses of a plant that seems to be effective in treating something new every week. While Canada has yet to legalize, it looks like it will do so on a federal level well before most U.S. states do. If or when that happens, American cannabis startups may find potential investors instead looking north for greener pastures.

One needs only to look at Desert Hot Springs to see how cannabis can help struggling local economies. What has historically been a city with perpetual economic struggles is now being praised as the future center of the cannabis industry in California; you probably saw the huge front-page article in the May 10 Los Angeles Times touting the city as Desert Pot Springs. So much pot will be produced in DHS that people are moving there from pot meccas like Amsterdam to supply those operations, as is the case with Grow Shop Hydroponics. GSH is located in North Palm Springs with easy access to what will be some of the largest commercial grows in the world. Real estate in DHS is now being snatched up for as much as twice the market value—and recreational use in California hasn’t even become law yet.

By dragging its feet, the DEA would send billions in investment dollars and revenue north of the border, and would further hinder the development of the cannabis industry here in the United States. It’s a fact: Legalization will happen in the United States. If we allow our government to delay the inevitable, that hesitation will cost us all dearly economically—and put us in a position of playing a desperate game of catch-up in medical cannabis research.

Published in Cannabis in the CV