Williams, California is a small town of 5,400 people 50-miles north of Sacramento where denizens are employed by the world’s largest tomato factory, ancillary services, and other agricultural jobs. With low wages and an 18% unemployment rate, this disadvantaged municipality struggles to keep its roads maintained and services up to desired levels.
Williams is proof that a town cannot thrive on tomato paste alone. Enter, economic incentives.
Opportunity Zones create opportunity
Part of the Tax Cuts and Jobs Act of 2017 established “Opportunity Zones” to encourage revitalization across the country’s most depressed areas without federal spending. Investors who bring capital to Qualified Opportunity Zones are eligible to benefit from exclusive capital gains tax incentives.
The program was designed to encourage long-term investment by enabling capital gains reinvestment across three thresholds. If an investor holds their Opportunity Fund investment for at least five years prior to December 31, 2026, they can reduce their deferred capital gains tax liability by 10%. If that Opportunity Fund investment is held for an additional two additional years, their deferred capital gains liability is lowered by another 5%.
Keep reinvesting for another three years, for a total of 10 years, and Opportunity Fund gains earned from Opportunity Zone investments can qualify for permanent exclusion from the capital gains tax altogether.
In June of 2018, the US Department of Treasury officially certified more than 8,700 census tracts as Opportunity Zones, constituting roughly 12% nationwide.
Williams, California was `one of them’.
These new Opportunity Zones created a serendipitous opportunity for one emerging cannabis company. Canna-Hub identifies, acquires, and develops or repurposes real estate to create Canna-Hub Campuses in California. The company works with underserved communities to facilitate business-friendly zoning ordinances, entitlements, and fees, offering cannabis companies all-in-one infrastructure.
Canna-Hub’s community-centered approach puts a variety of disparate cannabis companies into a single location where they can quickly become operational. Having worked closely with local legislators to receive proper zoning and negotiate permitting fees in advance, Canna-Hub is able to extend simplicity and economy to cannabis businesses.
Working side-by-side with one another offers real cost-saving synergies between community licensees. Third-party product testing, for example, can be done on-site using testing lab within the cannabis hub, eliminating those shipping costs for manufacturers within the same community. An edibles company in the same community can then purchase the third-party tested product for use in its own products.
Cities love this community model as cannabis-related businesses become confined to a single and secure location. In the case of Williams, Canna-Hub had already kicked off plans to develop one of its Canna-Hub Business Communities in Williams prior to the new laws.
Canna-Hub CEO Tim McGraw told me, “We started development of the project in early 2017 before Opportunity Zones even existed. The main objective of all our projects is to support the growth of the cannabis industry by providing a comprehensive real estate solution for licensed cannabis operators while bringing jobs and economic development to cities that need it the most.”
Canna-Hub Business Community CANNA-HUB
Not so fast
Cannabis wasn’t always welcome in Williams. After all, it’s a very conservative, somewhat religious town. Not the same as Sacramento’s more progressive attitudes around cannabis.
In 2017, the opening of a cannabis dispensary was proposed to the city council and the community came out in droves to protest having one in town. But a year later, things were different.
Speaking with Frank Kennedy, Williams City Administrator, the Williams community ultimately accepted the fact that laws were changing just as quickly as attitudes. “We can’t stop cannabis. We can stop a dispensary, but not deliveries. So we can’t really stop cannabis.”
So when the Canna-Hub project came along, things were different. The recreational marijuana laws had gone into effect and the community decided they could either participate or be left out.
Over 200 people showed up at a school auditorium one day to discuss the project. Peeling away at the pros and cons for allowing cannabis business within the city. In the end, the tax benefits of the Canna-Hub project were far more compelling than those of a single dispensary, and the community reasoned its decision to support the project with an analogy.
The Lynchburg argument
In 1909, the passage of a state law prohibiting the manufacturing of liquor ended what was once a robust distillery industry in the town of Lynchburg, Tennessee. It wasn’t until 1937 that the state repealed the law barring the manufacturing of alcoholic beverages, a move prompted by the strong lobbying of one particular state senator, the nephew of Jack Daniel.
Today, despite being home to American legacy spirit, Jack Daniel’s whiskey, Lynchburg and its home county of Moore is a dry county. You can manufacture there but you can’t drink there.
In the same way, Kennedy explained, the Williams city council rationalized the town could be home to a massive cannabis business hub without approving the consumption of the plant. “Lynchburg, Tennessee…why not? Otherwise, it’s going to happen in a neighboring city or county,” he said.
“While some people in Williams are still unsure about cannabis, they are becoming educated and have overall been very supportive,” McGraw told me. “Most people understand that cannabis is safer and more regulated than FDA approved drugs and millions of Californians experience therapeutic benefits from it.”`
There were three reasons city officials ultimately approved the Canna-Hub deal.
The first is what every economy wants–jobs. That 18% unemployment rate has a lot of people at home with nothing to do because the jobs don’t exist. Canna-Hub’s Business Community will bring with it an estimated 1,000-1,100 new positions. And these jobs pay better wages than farming pay. Seasonal work in agriculture pays $10-12 an hour, whereas theses new cannabis jobs start at more like $12-15 an hour and keep workers employed year round.
City officials also liked the idea of new homes and housing demand, along with new small businesses that would need to open to support the influx of new workers. And for a city where eight of the 15 Williams properties for sale on Zillow are in foreclosure at the time of this writing, the presence of Canna-Hub will help keep more foreclosures from happening once it’s up and running.
And lastly, the additional $3.2 – $3.4 million a year in tax income virtually doubles the city’s existing general budget. “There’s not a day that goes by without someone knocking on my door asking for a road to be paved or something”, Kennedy lamented. “Now we will have the opportunity to do it without depending on the state or federal government to break through some funding for us. We kind of put our destiny in our own hands.”
That was part of Canna-Hub’s plan all along. “The most rewarding part of what I do is seeing the impact our projects have on local economies and communities,” McGraw said. “The direct and indirect impacts from permit revenues, improved infrastructure to busier local businesses will hopefully have an even broader social impact long term.”
Oh, and as for tomato paste? Keep buying it, a here’s a helpful hint: it’s all about the caramelization. The secret to making the most of that unusual, pungent substance is to cook it in olive oil or similar until it turns a rich, dark red before diluting it and adding it to your culinary concoction.
Disclosure: I have no financial interest or positions in the aforementioned companies. This information is for educational purposes and does not constitute financial and/or legal advice.
Andre is a cannabis connector and the VP of Bus. Dev. for Verdantis Advisors, a full-service consulting agency.