InSight

Can I run a canna-business in an Opportunity Zone?

Financial Planning Dentist

Like many things in life, the answer here is “it’s complicated” and it’s going to depend heavily on the type of business you intend to operate. Let’s start with the good news as we unfold this potential boon to marijuana investors and store operators. 

It was left out of the law in 2017

While traditional ‘sin’  businesses were left included in the list of banned practices inside of opportunity zones, the recent ecosystem of cannabis-based businesses was left out. Some camps argue that because marijuana is still federally illegal, banning the business in the federal tax code would be redundant. Other camps have argued that leaving out the fledgling marijuana business is not an accident. I leave the interpretation and enforcements back in the hand of individual states which are currently choosing their course across the country. Additionally, if the law intended to expressly prohibit these practices it would have been easy to include clear language in their prohibition along with the other “sin” businesses. Its absence, then we feel, puts the interpretation and execution on the part of the states along with their maps and other eligibility determinations the states created.

It fits with the goals of the Opportunity Zone scheme

It’s hard to deny that the economic development that has accompanied legalization for both recreational and medicinal has been impressive. Cities have seen otherwise defunct warehouses, factories, and industrial storage facilities gain new life in the wake of legalization. Cultivation facilities, infrastructure vendors, fertilizer and chemical businesses, and retail outlets have all sprouted up in places that cities and states have written off as low-economic zones. This organic economic activity marries very well with the state objectives of the Opportunity Zone programs. 

The business would still be heavily regulated and approved

Given the regulatory environment surrounding the cannabis industry, both the business licenses and the location would be apparent to the state. I think it would be hard to argue that if the business operated with the approval and regulatory oversight regime set up by the state that could somehow void it from participation in the OZ. Everything would be above board with the state 

The opportunity set is encouraging

Because the industry is becoming far more than just the dispensary, this industry is wrapping its tendrils into several infrastructure needs that are required to make the supply chain work. Many of these businesses operate outside the traditional retail environment that draws so much eyre from municipalities and federal agencies. While the cannabis storefronts are the most visible component of the ecosystem, the most critical is cultivation and storage. These businesses look more like traditional chemical and agricultural supply companies and indoor growth facilities. It’s these businesses that might be able to transcend the negative attention typically associated with marijuana and still be a high profit, high impact role in the industry. Seemingly combining the core infrastructure needs, and the potential tax advantages of an OZ, and avoiding the regulatory and political concerns. This has led investors to believe that supply chain and cultivation operations might be the “safer bet” in this space and that retail might be too similar in operations to liquor stores which are prohibited.

The Former Treasury Secretary said an unofficial “no”

Treasury Secretary Steven Mnuchin advised in May 2019 that funds that operate in a Qualified Opportunity Zone “should not be used to invest in cannabis” but followed up with no formal direction from the treasury. Similarly, we are left to interpret the opinions of the new Treasury Secretary Yellen who has yet to officially comment on this program. It is my opinion that with bigger “fish to fry” in the wake of the pandemic the treasury will not be looking for more ways to shut down business formation, much less in areas that require the economic development encouraged by the OZ scheme.  

Bottom line, we feel that if the regulatory environment is followed effectively, and that there are no policy changes from the IRS or Treasury that the development of cannabis businesses will thrive in this tax environment. But as always, investments that push through the crevices should only be approached by those with the risk appetite for both regulatory, legal, and market-based risks.

 

More related articles:

Private Placements
Articles
Peter Locke

Private Placements in your IRA & 401(k)

A Self-Directed IRA (SDIRA) is very similar to a traditional IRA but gives you more ways to diversify your investments and retirement savings and can include using Private Placements. The SDIRA gives you greater control and flexibility by investing in things you know and believe in by widening your investment selections into your areas of interest or expertise.  Unlike your typical bank or brokerage account, you’re not limited to where you invest. The SDIRA gives you the ability to find alternative investments like real estate, private companies, start-ups, LLCs, LPs, etc.  At InSight, we partner with the Entrust Group to help administer the accounts, and empower our clients to invest in the things they’re passionate about to help them achieve their goals. Entrust shares our core beliefs that client’s should be able to find new ways to increase their potential for growth, protect their net worth against economic fluctuations through diversification, take more control, and grow their savings and retirement in tax advantaged accounts.  Being in Colorado, we’re surrounded by entrepreneurial leaders from technology to pharmaceuticals and we want our clients to get invested in those companies if they desire. Through Private Placements, our clients can invest in privately-held companies. Since a lot of those companies have a hard time getting the funding required to reach their goals, you could be the one that gets them the additional funding they need which spurs the company to new heights. Whether it’s LLCs, C-Corps, Private stock, Partnerships, Private Placements, business, or notes you can invest in almost anything. Private Placements allows companies to raise money by selling stocks, bonds, or other instruments. Some but not all offerings are exempt from federal securities registration requirements, meaning they may or may not have to comply with registration requirements of a public securities offering (meaning more risk if they don’t and less transparency).  It is extremely important that you make sure of a couple of key items before making this type of investment.  Before any investment do your due diligence. This can mean your own research, hiring someone to do a valuation, or a combination of both.  Understand your own liquidity needs and the liquidity of any investment prior to investing. Some investments in private placements require holding periods of 5-10 years so if you need or may need that money before or during that period then investing that money in that strategy isn’t for you. If you’re retired, you need to take RMDs. If you don’t have available funds the penalties for not taking it are extremely high You may be responsible for taxes in your IRA depending on if earnings are paid out or not LLCs can be considered securities and may be required to meet the standards of security offerings In order to make an investment like a Private Placement, you must be an accredited investor. Meaning, your net worth (excluding your primary residence) must exceed 1 million or you have to have income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.  Risks of Private Placements even after doing your due diligence and research include: They’re not reviewed by regulators at the state or federal level and therefore have become a haven for fraud. They’re now the most frequent source of enforcement cases conducted by state securities regulators in North America.  Background checks of sellers, officers, or managers may not have been conducted  Generally speaking, they’re illiquid, and investors may have to hold their investments indefinitely Investors are usually provided minimal disclosure information than a public offering, meaning investors know much less about the investment itself and the people running the show The value of the asset may be provided by a qualified third party, but they must provide sufficient supporting documentation with the Fair Market Valuation Form. FMV Form How to protect your investment: Surround yourself with people to help you, processes to research and understand the investment, and policies to hold you accountable Don’t complete an agreement or questionnaire unless you fully understand it Hire a 3rd party professional to review the document and investment If you’re asked to falsify information, walk away If your gut is telling you no because of a lack of clarity you should probably trust it Invest in what you know Request as much information as you can and ask every question you want

Read More »
Colorado Investment Advisor, Technology investing
New
Kevin Taylor

Meet Europe’s Tech Titan: The Giant Behind the Scenes

Imagine a company so integral to our daily lives, its products are in virtually everything tech-related you use, yet its name might not ring any bells. We’re talking about a Dutch powerhouse, ASML Holdings, often hailed as “the most important tech company you’ve never heard of.” This stealthy giant’s market cap skyrocketed from $25 billion to an eye-watering $225 billion in just a decade, and at one point, it even brushed past $350 billion. Last year alone, it raked in almost $20 billion in net sales and pocketed over $6 billion in profits. Impressive, right? The Wizardry of Chip Making ASML sits at the heart of the tech world with its cutting-edge chip-making equipment. Its specialty? Lithography machines. These aren’t your ordinary machines; they’re the wizards behind the curtain, etching incredibly complex circuits onto silicon wafers with the precision of a fine artist. This magic is essential for creating the brains of today’s tech – from the smartphone in your pocket and the laptop on your desk to the cars on the road and much more. Lighting Up the Tech World with EUV The star of ASML’s show is its Extreme Ultraviolet (EUV) lithography systems. These marvels use laser-generated EUV light beams, honed by massive mirrors, to sketch ultra-fine circuits on silicon wafers. This breakthrough allows for faster, more potent microprocessors and memory chips, fueling everything from consumer gadgets to military tech. The Intricate Dance of Chip Fabrication Picture this: a lithography system beams light through a stencil, transferring patterns onto a photosensitive wafer. The wafer shifts slightly, and the process repeats, layering patterns to build an integrated circuit, chip by chip. It’s a delicate dance, with the simplest chips comprising around 40 layers, while the most complex boasts over 150. The Linchpin for Leading Chipmakers The giants of the chip world, like Intel, Samsung, and TSMC, rely on ASML’s wizardry to craft the most advanced chips out there. With over a third of its workforce dedicated to R&D, ASML has outpaced its competitors, securing over 90% of the lithography market. And in a world where the appetite for chips exceeds supply, ASML’s machines, particularly its EUV systems, are in hot demand. Keeping Moore’s Law Alive ASML isn’t just making machines; it’s pushing the frontier of Moore’s Law, which predicts the exponential growth of computing power. Thanks to ASML, chipmakers can cram billions of transistors onto a chip, keeping the law alive and kicking. The Logistics of Delivering Innovation Getting one of ASML’s EUV systems from factory to chip plant is no small feat. It involves three Boeing 747s, 40 containers, and 20 trucks to transport a machine that’s as big as a bus, contains 100,000 parts, weighs nearly 200 tonnes, and costs about $150 million. And a top-tier chip plant might need up to 18 of these behemoths, representing a significant investment for any chipmaker. The Future Is Even Bigger ASML isn’t resting on its laurels. The next generation, the “High NA” EUV machines, promises even greater capabilities at double the price tag of their predecessors. This advancement is not just about keeping up with technology; it’s about leading the charge into the future of computing. So, the next time you swipe your phone, remember: there’s a good chance ASML played a part in making that moment happen. Hidden in plain sight, ASML is the silent titan powering our tech-driven world, one chip at a time.

Read More »
Articles
Kevin Taylor

Financial Plan Principles For Dentists

Dentists have a unique professional path so they should have a unique financial plan. They can double as a full-time practitioner and a CEO of the practice at the same time. With this opportunity, they can have a rewarding career and secure their financial future. However, as a dentist, you can only have the financial future you desire with proper financial planning. This is not rocket science. Nothing special can be built without proper planning and management. By Kevin T. Taylor AIF® and Peter Locke CFP® Dental professionals have the responsibility to learn the key principles of financial planning and wealth accumulation for themselves, their family, practice, and staff. For these priorities, dentists should work side by side with a dental-centric financial advisor. A dental financial advisor can help you create a financial plan and provide you with a perfect place to start your journey of financial stability and prosperity. Whether you want to discuss investments, savings, spending, taxes, corporate retirement, or legacy planning, you will find help with InSight. Here are key financial principles to help dental professionals stay atop their finances. Quit the chase, have a real financial plan If you are in a chase with your colleagues or you have a certain amount of money you want to make, quit now. Who cares if your colleagues have the latest cars or tech.  Also, I promise you, when you reach that dollar amount, you’ll want more. Take time to think about what success looks like to you, who you want to do it with, and what it involves you doing or having.  Then build a plan to get there. Financial freedom means maintaining your current spending and not working. We will work for you and share our insight to guide you there. Protect your assets with financial planning You want to make sure you protect your gains over the years and your income. Make sure you have health and life insurance, car and home insurance, disability insurance, and business coverage. Have everything that protects your asset so that the wealth you’ve amassed over the years doesn’t erode. Let’s be clear, this is not a pitch to buy more insurance.  Having a well thought out risk management plan means knowing how much and what kind of insurance you need.  It means investing in yourself to protect your net worth and the others you support. Save, and keep saving Don’t stop saving! We coach clients to know exactly what their saving rate is, and it should be something you can quote. Not only do our clients know their savings rate, they know what their target rate is and why it’s important to their plan. Set up a savings plan that is automatic, goes into the right account, and immediately gets to work for you. There’s a reason why your 401(k) and home are typically your biggest assets.  You don’t look at them, tinker with them, or make emotional decisions with them. When’s the last time you sold your house because the value went down 2%? Never.  Treat your investments the same way. Our clients are coached to not only manage risk on their liabilities with insurance, they are managing the risk of cash flow disruption with savings and investments. One of the best advantages to having savings and investment accounts is that it can serve as an emergency source of funds for urgent situations personally or in your dental practice. That way, you don’t have to run around looking for loans or another way to accumulate more debt (unless it makes sense given your circumstance). If you aren’t saving yet, start now.  If you don’t know if you’re saving enough, schedule a consultation. Consider Tax Planning Tax planning is important and should be taken very seriously. Clients often spend too much time fretting over markets and returns, and not nearly enough time having a plan for taxes. For the amount of time spent, you are far more likely to impact your net worth by having a deliberate tax strategy year in and year out, and more so in retirement then you’re by picking the right stock and timing the market. For example, being able to take 1 million and outperform the S&P 500 for a decade would net you about $215,000, but to move from an effective tax rate of 39% to 37% could net you almost $300,000 in positive net worth. Tax planning and a comprehensive tax strategy is a far more predictable and efficient way to maximize the value of a financial plan.  Also, ensuring you’re paying the appropriate amount in estimated taxes means being a good bookkeeper. Whether you’re doing this yourself (we don’t recommend) or delegating it to a third party, understanding what’s happening on a monthly basis can mean a huge difference in your tax liability.  Understand your estimated tax number so you can utilize your cash in more effective ways than paying Uncle Sam early or being stuck with a huge tax burden at the end of the year.  Wouldn’t you rather pay yourself, practice, employees, or family? You must consider the total impact on your investment strategy to avoid eroding your returns. Tax planning helps you to learn what is worth investing in, and how best to impact the trajectory of your financial plan. Seek professional advice to polish your Financial Plan Dentists have lots of opportunities in their tax strategy and in investment options. Both determining what your tax strategy looks like in retirement and in the current tax year are important leading indicators of financial success. Being able to see the cash flow of your investments, and the long term impact they will have on retirement puts you in the driver’s seat. You need the right financial advice, guidance, and planning so you can ensure that you stay on top of your finances and business. InSight has developed the P.E.A.K Process®, a game changing way practices take control of their finances and digest the actionable information routinely. Our clients work

Read More »

Pin It on Pinterest