Last week, a bipartisan slate of U.S. Senate co-sponsors introduced the Secure and Fair Enforcement Banking Act (the SAFE Act) that would allow the cannabis industry to tap the federal banking system. If passed, this could be a game changer for marijuana companies.

 

The SAFE Act has already been passed by the House back in September 2019 but was never brought up for a hearing, much less a vote in the Senate.

 

The bill's author, Congressman Ed Perlmutter, a Colorado Democrat, has introduced several versions of this bill many times over the last eight years. During that time, the legalization of marijuana has moved from a pie-in-the-sky hope of a few legislators to something that may actually have the votes to pass.

 

Forty-seven states have already legalized either recreational or medical marijuana (as well as the District of Columbia and four U.S. territories). That should have been pressure enough to overcome lawmakers' resistance and yet, the legal status remains the same. Cannabis is still a Schedule 1 drug that makes it illegal on the federal level; as such, most cannabis companies are excluded from utilizing banking accounts. They have to operate on a cash-only basis.

 

At the same time, the banking sector, as well as numerous public companies that might want to enter the cannabis space, are precluded from doing so in fear that they will run into problems with federal insurers and the federal government.

 

The cash-only model hamstrings marijuana companies that would like to borrow in order to expand but can't because bank loans are unavailable. It is both frustrating and somewhat ludicrous to many that this U.S. sector, which is valued at $17 billion, remains a cash business. It has also developed into a public safety issue since cash-laden tills of cannabis companies are prime targets for robberies and burglaries.

 

During the pandemic, a large number of states deemed the cannabis industry an essential business due to medical marijuana prescriptions. That also presents a public health concern, since more and more of these medical marijuana companies are dealing with increased demand. Many of them need access to the banking system to insure the continued flow of product to their patients.

 

In any case, in order for the SAFE Act to pass in the Senate, a minimum of 60 votes would be needed. At last count, advocates believe they have 59 votes, which would be more than enough momentum to at least field a Senate committee hearing. After that, the bill could be moved to the full Senate for a vote within the next month.

 

In the meantime, the New York State Legislature is expected to vote on its own Marijuana Regulation and Taxation Act, any day now. Passage would legalize recreational marijuana, as well as provide $350 million in tax revenue per year. This could be another large boost in revenue for several marijuana companies. The market for recreational pot could become a multibillion-dollar industry in the state. Some forecasters expect sales to grow as high as $7 billion throughout the next four years.

 

And while investors focus on the U.S., don't forget that Mexico has already passed legislation in their lower house, the Chamber of Deputies, this month. The bill will now go to the Senate before being sent to President Andres Lopez Obrador, who already supports passage. The legislation is expected to be approved by their Senate any day now. Mexico, with 130 million people, would represent the largest marijuana market in the world by population.

 

With all this good news on the legislative font, it appears to me that we are on the cusp of a major series of catalysts that should benefit the cannabis industry and propel the stock prices of several well-positioned and profitable marijuana companies here in North America.  

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Thirty-three percent of adults are obese, while ten percent of households with children are facing a food crisis. This is happening together, at the same time, in the same place — America. How can this be?

 

During the height of the pandemic, if you recall, the media featured long lines of hungry Americans queuing up at food banks and other community centers for food to feed their families. That was a shocking sight to me. In the supposed wealthiest country in the world, where Americans usually throw away more food than they eat, there are people going hungry? I thought it must be caused by supply chain problems, not the scarcity of food.

 

Digging deeper, I discovered that millions of Americans have been facing food insecurity well before the coronavirus. The pandemic simply made a bad situation worse and food scarcity strikes hardest at the most vulnerable populations. Black families, for example, are twice as likely as white to have inadequate access to healthy food.

 

But first, we need to understand the definition of food scarcity or food insecurity, since both terms are being used to define the same thing. The term refers to the lack of access to enough good, healthy, and culturally appropriate food. From an economic perspective, it is defined as the inability to afford that same healthy food for all family members.

 

Let me be clear, however, food insecurity and hunger are not the same concept, even though they may be somewhat related. Food insecurity is socio-economic, which means its roots are both financial and cultural. Hunger is physiological, meaning physical. It is a physical sensation that might be a consequence of food scarcity or insecurity, but not always. We usually measure food scarcity at the household level and hunger at the individual level.

 

Back in the day, my family was considered "poor" (lower income would be the politically correct handle in today's world), but we were never hungry. Although, I suspect that there may have been times that my mother went without to feed us kids, but I couldn't prove it. Thank God, however, for the little backyard summer garden we had (although eating tomato sandwiches for lunch several times a week was a bit much).  

 

Today's food security (or insecurity) is our society's attempt to move the discussion of food policy beyond simple hunger. It is an effort to capture the reality of individuals and families who struggle to get enough good quality food on the table. Food scarcity and obesity, believe it or not, have much in common.

 

Obesity is defined as having excess body fat. Adults 35 years of age and older with a Body Mass Index (BMI) greater than 30 are considered obese. Former President Donald Trump, for example, falls onto that category. Where food scarcity and the problem of obesity meet most often is around the meaning of "good and healthy" foods.

 

The lifestyle of the obese and the poor coincide in a number of areas. Poorer working families (especially single parent households), for example, have neither the money, nor the time to plan meals and supervise their family's food intake. Skipping breakfast, eating out at cheap, fast food joints, consuming highly processed and calorie-rich foods, snacking in front of the television, and drinking sugar-sweetened beverages are regular occurrences for families working to put food on the table. Those same eating habits are also commonly found among obese families and individuals.

 

Given that background, it should not surprise us that one out of every six American children are at risk of food scarcity and suffer from obesity as well. Food insecurity is influenced by any number of factors including income, employment, race/ethnicity and disability. It can be long-term or temporary.

 

For years, I have written about the growing income inequality in this country. Unfortunately, both the private and public sectors have ignored that issue. The onset of the pandemic only made a bad situation much worse. The huge rise in unemployment, the long-term trend of sinking real wages in the service industries, coupled with the shrinking safety net of both private health care and social programs have resulted in problems only one of which is food scarcity.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

The nation should have a lot to celebrate in the coming months. Most economists are busily raising their forecasts for growth for the remainder of the year. If their forecasts are accurate, Americans can expect a booming economy this year and into 2022.

 

The arguments for growth are straightforward. The number of Americans that are being vaccinated is now higher than the number of new coronavirus cases. By the end of May 2021, if government forecasts are correct, almost everyone in the U.S. that wants a vaccination should have one. As a result, we can expect to see a re-opening of most businesses no later than the second half of the year. That, in turn, should lead to a rapid hike in economic activity.

 

But what will really spark the coming boom for the nation's economy is the $1.9 trillion American Relief Plan. The bill has just passed Congress and, according to the Biden Administration, money will start flowing into the pockets of those Americans who have suffered the most in the past year.

 

As a result, economic growth is expected to be the strongest since 1984. The latest consensus numbers of 76 economists are looking for Gross Domestic Product to rise by an annualized 5.6 percent in the second quarter, followed by 6.2 percent in the third quarter. Some see the economy jumping by as much as 10 percent between April and June.

 

The engines of growth are expected to be a combination of business investment and consumer spending on everything from airlines to restaurants. Throughout the last year, Americans that could, have saved as much as 20 percent of their total income. That brings the total savings amount for the month of January to $4 trillion. Some of that savings is expected to find its way into the economy as pent-up demand comes to the forefront. If you combine that with additional fiscal spending, we have what could be a perfect storm of demand for goods and services.

 

Recent manufacturing data from the Institute for Supply Management revealed that the sector had logged its highest growth level since August 2018. Personal income surged 10 percent in January, while household wealth increased nearly $2 trillion for that month.

 

Recently, many market participants have jumped on the inflation bandwagon figuring that all this demand coupled with the central banks loose monetary policies will trigger a higher rate of inflation. The Federal Reserve Bank has already said that they would be willing to allow inflation to rise to something above their long-stated ceiling of 2 percent. I expect that 2 percent rate should be achieved sometime in the next few months if economic growth is close to the forecast. Unfortunately, it will take job growth much longer to recover. Full employment could take years to accomplish.

 

None of these economic forecasts consider the possibility of an infrastructure program later on this year. The numbers talked about today are about equal to the amount of the $1.9 trillion relief package. Estimates that, at the minimum, such a program could mean another $2 trillion or more would surely boost the economy further into next year.

 

But, unlike the Democrat-sponsored and passed American Relief Bill, a meaningful infrastructure effort would require a bi-partisan effort. Politics has been the death knell in just about every past attempt at fixing the nation's roads, bridges and airports. Given the present state of uncertainty and division within and between both parties, the chances of that happening are neutral at best. But for the nation's sake, we can always hope.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Americans are used to purchasing products, either on credit or cash, and having them delivered within a week, at the latest. Repairing those products such as a household appliances may take a little longer, but not by much. The pandemic has changed all that.

 

Now, I am not talking about toilet paper. That was last year's problem. No, it's about some large appliances and the accessories and parts that are crucial to their inner workings. Take my 9-year-old refrigerator for example. The water dispenser on the outside door doesn't work. It's a problem that has been going on for a year now, and the part needed to fix it is "on back order.”

 

Then there are my broken gas fireplace fans. The fans gave up the ghost just in time for the winter season. Ordering the parts was easy, but here it is the beginning of March and maybe, just maybe, the fans will be delivered and installed just in time for summer.

 

And then there is the mystifying disappearance of one of my cooking staples of convenience, minced garlic. For years, it was a ubiquitous purchase that I rarely thought about, until suddenly it was no longer in its usual place above the potatoes and loose onions counter. The guy in the vegetable department said they were out of stock and were uncertain when or if they would be getting any more of it. I finally found a few small jars hidden away in a corner of another supermarket.

 

Those are just a few personal examples. I came to realize that the coronavirus has upended the world's supply chains in ways that we rarely think about. The pandemic forced certain changes in our habits. Many of us stayed at home. Few outlets existed to spend money, so we stayed at home and spent money on our home goods. Instead of restaurants, we had to learn to cook. That meant stocking up on food and the freezers and refrigerators in which to hold it.  We didn't need dry cleaners because we are all wearing sweats and working from home. But we do need washers and dryers.

 

At the same time that demand for these appliances exploded, the factories in countries that produced them were forced to scale back or shut down production entirely as the coronavirus decimated their workforce. This has created shortages. Exactly what appliances and other products depends on the supply chain of the individual good. It becomes a question of who makes the individual parts that together comprise so many appliances.

 

The facts are that certain important parts, items such as magnetron tubes for microwaves, compressors for refrigerators and freezers, for example, are made by a mere handful of overseas manufacturers. Most of these companies are in Asia.

 

Some of the product categories that have been really hurt by supply chain disruption might surprise you. The FDA is monitoring certain medicines and prescription drugs, especially some generic brands, since certain ingredients are manufactured in China and India. A number of consumer electronic products, solar panels, auto parts, air conditioners, toys and games, vaping devices, and even T-shirts and socks are included.

 

As for my beloved minced garlic, 70 percent of the garlic consumed in the United States is imported from China. Prices have risen by more than 30 percent since the pandemic began, so I'm guessing that minced garlic is getting too valuable to simply mince and stuff into a jar. To tell the truth, I'm finding that while convenient, the canned flavor lacks the pungency of mincing garlic myself. I guess that might qualify as a silver lining in the present supply chain chaos.   

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

One of the hottest trends on Wall Street today is "special purpose acquisition companies" or SPACS. There is hardly a day that goes by without an announcement of a new SPAC, or the acquisition and merger of a private company by one.

 

It works like this. Even though they are called "companies," SPACs have no commercial operations, no sales, profits, or losses. All they have is a pile of cash. They received that money from investors in an initial public offering (IPO) with the promise that they would invest that money down the road into a private company with good prospects.

 

You are basically giving a blank check to a group of financial pros with a track record, betting that they will make good on their promises. The new SPAC usually prices its shares at $10 in the IPO, while the money raised goes into an interest-bearing count until the right target company looking to go public agrees to be acquired and merged into the SPAC. But that is no sure thing.

 

SPAC shareholders must vote their approval of the proposed target company. They can refuse or agree and exchange their SPAC shares into the merged company or redeem their SPAC shares at their original investment price, plus interest. There is also a deadline involved. The SPAC must come up with a suitable purchase within two years, or the SPAC is liquidated, and the money returned to investors with interest.

 

Initially, SPACs were conceived and marketed by Wall Street types, usually a team of institutional investors with reputations for making money in the hedge fund or private equity areas. Although the SPAC structure has been around for years, it was only used as a last resort by tiny companies that would have a difficult time going public through an IPO. The pandemic changed all that.

 

Many private companies that wanted to go public feared that investors would not have an appetite for new IPOs in an extremely volatile, coronavirus-fueled market. SPACs offered an easy, fairly streamlined alternative solution. Companies could close a SPAC deal in a few months, rather than waiting as much as six months or more for a SEC IPO regulatory approval. Going the traditional IPO route is expensive as well. Plus, prospective companies can negotiate their perceived public market value with the SPAC management instead of being at the mercy of their IPO investment bankers or the buying public during the road show.

 

Typically, the sponsoring SPAC receives a 20 percent stake in the final, merged company, which makes it a lucrative proposition for the sponsors. That payout has attracted a growing number of professionals looking to start their own SPACs. In addition, a slew of big-name CEOs and billionaires have jumped on the SPAC bandwagon, as have sports stars, singers, and others seeking to cash in on the trend.

 

If all this sounds like a dream come true, it is — at least for private companies that want to go public.  Last year $83 billion was raised through SPACs, which was six times the amount raised in 2019, and almost equaled to the total new IPO market.

 

For the individual investor, however, it may not be such a great deal. More often than not, the track record of investing in SPACs is less than if you purchased a typical IPO. Although some SPACs do hit home runs, according to a recent Harvard study, the vast majority of post-merger SPAC share prices drop by one-third or more after the deal. The Harvard study went on to say that by the time the merger actually does occur, the $10 share price actually has a cash value of just $6.67. In this kind of transaction, it is the shareholder, and not the company, that is bearing the brunt of costs. There is another and more pressing issue with SPACs. They might also be victims of their own success in the future.

 

This army of new SPACs is already in fierce competition with traditional IPO bankers, as well as venture capitalists. They are all chasing the same dwindling supply of well-capitalized private companies with good prospects. The temptation may be to just find companies willing to merge, despite their prospects or financial condition. In addition, the temptation to value the targeted company at a price that will win their business over the competition is a real and present danger.

 

My own experience in buying SPACs is that I have made the most money buying pre-deal SPACs. I usually pay less, but that is understandable. I take on the risk of waiting for a deal. Remember, the SPAC could take two years to find a suitable merger company, if ever. In most cases, I usually sell some, or all, of my position in the days following the announcement of a successful merger. Of course, there have been some notable exceptions to that rule depending on the company, its products and future potential. It requires research, patience and work.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.