Marijuana Millionaires

I recent­ly met up with a friend who’s drift­ed in and out of the cannabis indus­try.  I’ll call him Tom. 

Tom has seen rooms full of mon­ey that needs to be turned and tum­bled just so it doesn’t dete­ri­o­rate. 

Tom has also seen the inside of a fed­er­al prison as a con­vict­ed felon.  

Tom has a “real” job now, and the world of pot is well in his rearview mir­ror.  Still, my con­ver­sa­tion with Tom brought up a few impor­tant points I hadn’t thought of.

As I now under­stand it, the cannabis indus­try rep­re­sents untapped poten­tial to invest deeply in Amer­i­can ener­gy infra­struc­ture and make a prof­itable but ignored and unrec­og­nized  indus­try a dri­ver of pos­i­tive change.

Let’s start at the lifeblood of any busi­ness:  Cash flow.

Before we even get into the “flow” part, let’s deal with the ele­phant in the room:

What actu­al­ly hap­pens with all that cash?  Due to pot still being fed­er­al­ly ille­gal, you can’t put it in the bank.  You can sit on it, but this isn’t just a few thou­sand bucks that you have under your mat­tress.

A mil­lion dol­lars in cash will fit (tight­ly) in a gym bag, but if you just leave it, even­tu­al­ly the mon­ey will start to break down.  Paper is an organ­ic prod­uct and has a lim­it­ed lifes­pan.  The Fed­er­al Reserve esti­mates that a $5 bill will last 5.5 years, and a $100 bill will last 15 years, although they’re not so sure about that hun­do.  They redesigned the $100 bill in 2013, so they don’t “have suf­fi­cient data to pro­vide an esti­mat­ed note life.”  

Let’s say you have 30 of those gym bags.  Where do you keep them?  What hap­pens if fed­er­al agents stum­ble across it?  

While the first ques­tion has a less straight­for­ward answer (because the suc­cess­ful peo­ple don’t talk about it), the answer to the sec­ond ques­tion is clear:  

If the feds find your cash, they’ll seize it and you may go to prison.  Remem­ber, even if pot is legal in a giv­en state, the fed­er­al gov­ern­ment still thinks of it as a Sched­ule I drug and they stand to prof­it immense­ly just by tak­ing your cash under the guise of it being tied to a fed­er­al crim. More on that in a minute.

What about spend­ing it?  You can spend it, and that sounds fun for us nor­mal folks, but buy­ing lots of big tick­et items with cash has two prob­lems.

First, buy­ing fan­cy cars and big hous­es will cost you mon­ey in the long run.  Main­te­nance on a Fer­rari or a man­sion isn’t cheap.  You’re basi­cal­ly buy­ing a drain for your mon­ey.  

Sec­ond, lots of large cash pur­chas­es will rapid­ly put you on a watch list.  Many fed­er­al agents backed by “civ­il asset for­fei­ture” watch care­ful­ly for cash expen­di­tures over $10,000. What is “civ­il asset for­fei­ture”?  One of the scari­est ideas in the inven­to­ry of law enforce­ment.

Civ­il Asset For­fei­ture is a legal tool that allows law enforce­ment offi­cials to seize prop­er­ty that they assert has been involved in cer­tain crim­i­nal activ­i­ty.  The own­er of the prop­er­ty doesn’t need to be guilty of a crime:  CAF pro­ceed­ings charge the prop­er­ty itself with involve­ment in a crime.”1

You don’t have to be guilty of any­thing, but your mon­ey can be.  If that mon­ey was used in a trans­ac­tion involv­ing cannabis, it’s not uncom­mon to show up to a cash pur­chase and have all your mon­ey just…taken by the feds. 

Why would they do that?  Civ­il Asset For­fei­ture is a rev­enue stream for the fed­er­al gov­ern­ment, and through a process called “equi­table shar­ing” can also pay out to local law enforce­ment agen­cies. 

You can go to court to get it back, but the legal fees can be greater than the val­ue to retrieve it and the suc­cess rate is low.  

So, what would you do if you want­ed to take your mon­ey that you worked hard to make (build­ing a suc­cess­ful and sus­tain­able busi­ness is nev­er easy) and hold on to it for as long as you could rea­son­able fore­see with­out run­ning afoul of the law?

Set­ting aside the hur­dle of Civ­il Asset For­fei­ture, where should you invest your wealth?

The glar­ing­ly obvi­ous advan­tage the cannabis indus­try has is that they are flush with cash.  

Instead of try­ing to hide it (where it will dete­ri­o­rate) or spend it on flashy pur­chas­es that will attract atten­tion which will even­tu­al­ly lead to get­ting the mon­ey tak­en away, why not lean into the obvi­ous and buy into a cap­i­tal inten­sive busi­ness that will pro­duce rev­enue for as far for­ward as we humans can pre­dict and sup­port Amer­i­can inter­ests?

What busi­ness is that?  Renew­able ener­gy and ener­gy stor­age.  While diets, design­ers, and divas come and go, the human demand for ener­gy has no pre­dictable decrease for as far ahead as we can see.

Renew­able ener­gy and ener­gy stor­age (bat­ter­ies large & small) is insane­ly cost­ly to get into, only prof­itable at scale, and dif­fi­cult to get financ­ing for.  

For any giv­en wind or solar pan­el farm you need huge swaths of land, the cap­i­tal to buy the actu­al machin­ery, and the long term cash reserves to get it up and run­ning.

Still, those who can afford to climb over that bar­ri­er to entry sud­den­ly stand on a field with almost no com­pe­ti­tion and an unend­ing field of enor­mous prof­it poten­tial.

Ok, ok, that sounds good.  Still, how would it work?  If you can’t risk buy­ing some­thing for cash over $10,000, how are you going to pay cash for a $10,000,000 invest­ment?

Straight­for­ward:  You involve all agen­cies from the out­set.  Invite in fed­er­al agents who won’t pros­e­cute, state agen­cies who want their share of the tax rev­enue, and work with the fed­er­al judi­cia­ry to build a struc­ture where a cash pur­chase is pre-approved under the spe­cif­ic author­i­ty of a fed­er­al judge. 

The com­pa­nies sell­ing the equip­ment and exper­tise are eager and will­ing part­ners; what busi­ness wouldn’t want to be paid up front in cash at that scale?

Why would any agency sup­port this?  Because this rep­re­sents an invest­ment in Amer­i­can ener­gy infra­struc­ture, which is bad­ly in need of it.  

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