Opportunity Zone Magazine Opportunity Zone Magazine Volume 1, Issue 1 | Page 29

BEST BUDS? HOW OZ INVESTORS GREW FOND OF CANNABIS
THE SYMBIOSIS OF CANNABIS AND OZS
Cannabis and OZs might not seem an obvious pairing, but
experts say they’re potentially a match made in heaven, offering
a big upside for investors and substantial financial and strategic
benefits for cannabis entrepreneurs. That’s partly because the
cannabis industry is booming: with most states now allowing
medical marijuana, and 10 states and the District of Columbia
allowing recreational use, the market is expected to grow to
$24.1 billion by 2025, according to New Frontier Data. The
specific need for Opportunity Zone dollars, however, stems
from the fact that cannabis remains federally illegal, so banks
and institutional investors are giving the sector a wide berth.
“The reason this is an opportunity for private investment
right now is because it’s illegal,” explains Pete Asmus, CEO
of GreenZone 360. “If we got approved federally, we could get
FDIC loans for construction — but this puts us in a position
where we have to go to private investors.”
Such constraints mean that cannabis companies typically
pay a two- to threefold premium when renting commercial
property — an attractive proposition for Opportunity Zone
investors with an eye for real estate, says Nathan Whigham,
president of EN Capital.
“The guys that are doing it smartly are making really outsides
returns,” he says.
And the benefits f low both ways. Besides providing an
injection of capital, the Opportunity Zone program can help
cannabis firms to document the benefits they’ll bring to
distressed communities, says Michael Mayes, CEO of cannabis
consultancy Quantum 9. That’s important in areas where
cannabis licenses are hard to come by, since points-based
licensing regimes give significant weight to projects’ social
and economic impact.
“Opportunity Zones are a huge deal, because it’s a game of
inches — the winners are decided by only a few points,”
Mayes says. “It’s one of the first things I discuss with a client.”
THE BENEFITS CAN COME WITH CHALLENGES
But there are risks, too. Opportunity Zone investors are
barred by statute from bankrolling a range of so-called “sin
businesses” including liquor stores, golf clubs, and massage
parlors — but marijuana isn’t on the list, which was drawn
up long before anyone contemplated the creation of a legal
cannabis industry. Many industry-watchers believe that
because cannabis isn’t explicitly branded a “sin business,” it’s
fair game for Opportunity Zone investors.
“Cannabis is excluded, and we can infer from that that it’s okay,”
says James Mann, a partner at Greenspoon Marder. “There’s
a strong case that people investing in cannabis businesses in
Opportunity Zones are entitled to the tax benefits of the regime.”
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