Opportunity Zone Magazine Opportunity Zone Magazine Volume 1, Issue 1 | Page 30

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OPPORTUNITY ZONE MAGAZINE | VOLUME 1
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ISSUE 1
Not everyone is so optimistic, however.
Capital president. “Once it’s federally rescheduled, the world
changes.”
“It isn’t a slam dunk,” says Lisa Zarlenga, partner and co-chair
of the Tax Group at Steptoe & Johnson. “It’s easy to say ‘They
list the sin businesses, and cannabis isn’t listed, so it’s okay.’
But you have this overriding concern that it’s still considered
illegal for federal purposes.”
For better or worse, she notes, clarification could be coming:
in March, Treasury Secretary Steven Mnuchin indicated to
the Senate that he would review the applicability of the “sin
business” rule to cannabis firms. Zarlenga says she expects
an official ruling to be handed down at some point, though
perhaps not in the next round of regulatory guidance. “It
might go into a later round, and we’ll be stuck with the
uncertainty in the interim,” Zarlenga says.
That should give pause to smaller-scale OZ investors, warns
Lisa Bernard-Kuhn, editor of Marijuana Business Daily
Investor Intelligence. If cannabis were fully legalized, a wave
of institutional capital would break over the sector, and some
small-scale investors might get washed away.
“The real winners here will be whoever can lay claim to a
national brand,” Bernard-Kuhn says. “Smaller operations will
either need to position themselves to be an attractive takeover
target or find some incredibly differentiated approach that
allows them to continue to compete with what could be the
Coca-Cola of cannabis.”
Cannabis entrepreneurs freely admit that it takes a strong
stomach to invest in a sector that’s founded upon processing
and selling a federally illegal drug. Still, many believe that
federal deregulation is coming sooner or later, and that
investors who climb aboard now will be better placed to make
bank when the sector becomes fully legal. For now, though, OZ investors and developers like Basecanna
CEO Jack Boyajian say they’re excited to be getting in on the
ground floor. Certainly, the industry will change dramatically
in coming years, Boyajian says, but OZ investors who invest
in solid, well-managed cannabis operations will be well-placed
to secure a lucrative buyout in the event that big corporations
start muscling their way into the industry.
“All the smart guys who’re investing in cannabis from the real
estate side or the operations side are coming in now, because
they want to get ahead of that curve,” says Whigham, the EN “Our investors would have a very significant payday for
themselves if that ever happened,” Boyajian says. “It would be
a wonderful exit strategy.”
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