Monday, January 31, 2022

epublican Congresswoman Nancy Mace Is On A Mission To Legalize Cannabis—And Amazon Just Got Behind Her

https://www.forbes.com/sites/willyakowicz/2022/01/25/republican-congresswoman-nancy-mace-is-on-a-mission-to-legalize-cannabis-and-amazon-just-got-behindher/?sh=22395fc05450 



The freshman representative from South Carolina introduced an Americans for Prosperity-endorsed bill to end federal pot prohibition and says legalization is an issue that unites America—“just like apple pie.”


On the second floor of the Cannon House Office Building, across Independence Avenue from the U.S. Capitol, Representative Nancy Mace is drinking rosé out of a can as her Havanese named Liberty—who is a very good boy, she assures—sits next to her in a leather chair. As the sun sets over The District, Mace talks about why cannabis should be legal.

“There's a million reasons to end federal prohibition and the only place where this is controversial is up here,” says Mace. “It’s an enormously popular idea. America is like: ‘WTF, D.C., why have you not done this yet?’”

In November, the 44-year-old freshman Congresswoman, who represents South Carolina’s coastal swing district spanning Charleston to Hilton Head, introduced the States Reform Act, a bill that would end the federal government’s 85-year prohibition on marijuana. Mace is certainly not the first politician to introduce a cannabis legalization bill, although it’s been impossible to get one passed by both chambers of Congress.

But Mace already has one of the most powerful conservative groups in the world in her corner: Charles Koch’s Americans for Prosperity. And now she has one of the world’s largest companies supporting her bill: Amazon.

In June, the retail giant announced that it would exclude marijuana from most of its employee drug testing and started lobbying to legalize cannabis. Six months later, the company met with Mace and now says it will support her States Reform Act. “They don’t want to sell it,” Mace says, noting that employment is the driving force behind the support. “It opens up the hiring pool by about 10%.” Brian Huseman, Amazon’s vice president of public policy, adds: “This bill offers comprehensive reform that speaks to the emergence of a bipartisan consensus to end the federal prohibition of cannabis.”

Mace’s bill is just the latest effort to end the federal government’s ban on marijuana, but the first to come from a Republican. The Safe Banking Act, which would give cannabis companies greater access to the financial system and is sponsored by Senator Jeff Merkley and Representative Ed Perlmutter, both Democrats, has passed the House five times but was nixed from the federal defense spending bill in December. Senate Majority Leader Chuck Schumer and fellow Democratic Senators Ron Wyden and Cory Booker proposed a bill to legalize marijuana last summer, but it hasn’t been formally introduced yet. Representative Jerry Nadler’s More Act passed the House, yet the Senate still hasn’t picked it up.

Meanwhile, Koch’s political advocacy group Americans For Prosperity is fully behind Mace’s new bill. AFP will spend millions to lobby “to make this the most highly resourced effort in the history of this issue,” says the group’s chief government affairs officer Brent Gardner, to achieve Mace’s vision of legalization: end federal prohibition, institute a low federal excise tax, regulate pot in a similar fashion to alcohol, and allow states to create their own laws. The cannabis industry also adores Mace and her bill, which is pro-business. (She proposes a 3% federal excise tax—compared to Schumer’s 10% tax—which would generate an estimated $3 billion in annual tax revenue by 2030.) Still, her bill is unlikely to become law, and Mace is under no pot-addled delusion that its passage is a sure thing. Her broader goal is to get as many Republicans as possible on board with cannabis reform and show the GOP that legalization is a good campaign issue in 2022 and beyond.

“It’s American, it’s uniting,” Mace says. “There are three things that really bring people together—animals, Britney Spears and cannabis. Those are the three things I've found that have struck a chord with the American people and that can bring people together at the dinner table—just like apple pie.”

And yet for decades the federal government has categorized marijuana as one of the world’s most dangerous and addictive drugs. But 36 states currently allow for some kind of medical use, while 18 states allow anyone over 21 to buy pot. Despite the challenges of running a federally illegal business, Cowen estimates that the United States had $25 billion in legal sales in 2021 and expects the industry will become a $100 billion juggernaut by 2030.

Mace’s States Reform Act would remove cannabis from the Controlled Substances Act—it’s currently designated a Schedule I drug along with LSD and heroin— and regulate it like alcohol. The federal government would impose a nationwide 21-year age limit for cannabis consumption, with an exception for medical use. The bill would also allow for states to make their own rules and laws around cannabis, including banning sales and use within state borders.

Boris Jordan, the billionaire chairman of Massachusetts-based Curaleaf, which has 125 dispensaries across 25 states and is expanding to the U.K., Germany, Italy, Spain and Portugal, likes Mace’s bill. “It’s much more business-friendly” than Schumer’s proposal, says Jordan. He says the low tax rate and the opening of interstate commerce—currently, marijuana cannot cross legally from one state to another—are two of the best aspects of the bill. “The reason I'm excited about it,” he says, “is because it's the voice of reason in Washington.”

Mace clearly knows how to please—and provoke—people on both sides of the aisle. In many ways, she’s your typical Republican: she loves guns, low taxes and free trade, but hates Dr. Fauci and warns that socialists want to take over America. Similarly, she called on Republicans to “rebuild our party” after the January 6 insurrection and opposed efforts to overturn President Biden’s win. But she also voted to remove Representative Liz Cheney from GOP leadership and voted against forming a bipartisan commission to investigate the Capitol riot.

And she is known for skirmishes with Republicans like Marjorie Taylor Greene and Democrats like Alexandria Ocasio-Cortez, whom she refers to as “performance artists,” not politicians. In November, after Mace criticized Lauren Boebert, a Republican representative from Colorado, for calling Rep. Ilhan Omar, a Democrat from Minnesota who is Muslim, a terrorist, Greene tweeted that Mace is “the trash of the GOP conference.” Mace returned fire, tweeting a series of emojis—a bat, a turd and a clown—to call Greene bat-shit crazy.

“They want to have Twitter followers,” Mace says, sitting in her office beside a pile of books, including her own, In the Company of Men: A Woman at The Citadel, and The Lords of Discipline, a novel set at the school by South Carolina’s most celebrated author, Pat Conroy. “They want to say the craziest thing to get the TV interviews and then raise a bunch of money, but then they don't do anything with it.”

The Representative from the Palmetto State has, however, softened her tone with Trump. His “policies were phenomenal,” she says, but his “rhetoric” is “an issue.” In response, the former president added Mace to his proverbial enemies list—in November, Trump called for “good and smart America First Republican Patriots” to run against Mace and 11 other Republicans in Congress.


“Cannabis is not a red or blue issue,” says Trulieve CEO Kim Rivers. “And cannabis reform has done well in conservative states.”


Then again, Nancy Mace has been well-trained for conflict. Born at Fort Bragg to an Army major and a schoolteacher, she became the first woman to graduate from The Citadel’s Corps of Cadets in 1999. After earning a master’s degree in journalism and communications, she started her own PR and marketing firm and then pivoted to politics. In 2015, she worked for Trump’s campaign and eventually became a South Carolina statehouse representative before being elected to Congress in 2020.

Mace’s path to pot was defined by her resilience. In 1994, when Mace was a 16-year-old high school student, she was raped by a classmate. She dropped out of high school on her 17th birthday and started working at a local Waffle House. She was put on prescription medication to deal with her depression and anxiety, but it didn’t help.

“It made me want to end it all,” she says.

Then she started smoking cannabis for about a year to help curb her anxiety. “It helped me get through some really difficult times,” says Mace, who quickly adds that no one should self-medicate nor use medical marijuana without a prescription.

Mace’s bill also attempts to heal some of the inequities of America’s war on drugs, which disproportionately affects people of color. She estimates that if her bill were to pass, and some 2,800 federal prisoners incarcerated for non-violent cannabis crimes were released and another 1,100 or so people who get put in prison for similar crimes each year are not incarcerated, the government would save nearly $600 million over five years.


CANNABIS LAWS BY STATE



“This has been a very long, very painful, expensive and harmful federal war,” she says. “And when you look at the statistics, there are great disparities between Black and Brown and white communities. [Ending federal prohibition] would bring more opportunity and parity, and end and cure some of the grievances in the war on drugs.”

That includes who is leading the charge. Cannabis legalization has historically been a progressive issue, but Mace wants to make it a Republican talking point. Kim Rivers, the CEO of Florida-based Trulieve, which has 160 dispensaries across eight states, welcomes Mace’s approach. “Cannabis is not a red or blue issue,” says Rivers. “And cannabis reform has done well consistently in conservative states. It sends a significant message that cannabis is not partisan.”

Mace’s bill is also being touted as a lifeline to farmers who grow cannabis. Randal Meyer, a lobbyist and member of the Cannabis Freedom Alliance, a group that includes AFP, says the bill’s stance on free trade, allowing companies to import and export marijuana, would be a boon for U.S. growers.

“American cannabis is the most valuable cannabis in the world,” says Meyer. “We're essentially sitting on a cash crop that we don't export to people who are willing to pay four or five times what American consumers would pay for the same quantity.”

Despite all of this momentum, Mace knows the States Reform Act is unlikely to go forward before the midterm elections, but her goal is to show a “proof of concept” that there are enough votes on the Republican side to get meaningful reform across the finish line in Congress.

When asked what it means that cannabis is now more popular than President Trump in red states—74% of Mississippians, for example, voted for the state’s medical marijuana ballot initiative while nearly 58% of Mississippians voted for Trump—she says it’s a signal to Republicans that they need to get on board with legalization.

“It means that if you don't do it, you're full of shit,” Mace says. “There's no reason not to do this. And if you are anti-marijuana, this is not forcing you to do it. It's not forcing your state to legalize it. But if it is legal in your state, then we're going to tax it and regulate it.”

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I am a staff writer on the vices beat, covering cannabis, gambling and more. I believe in the many virtues of vices. Previously at Forbes, I covered the world’s richest people as a membe

Thursday, January 27, 2022

Dollars Ex Machina

https://doomberg.substack.com/p/dollars-ex-machina 


When your outflow exceeds your income, your upkeep becomes your downfall.” – Jim Rohn

In late 2016, we were approached by a brilliant entrepreneur with an interesting investment opportunity. We mask the full details here to protect anonymity but believe us when we say this person has a knack for being incredibly early to imminent megatrends at the bleeding edge of technical and social disruptions. His pitch involved a company he and some colleagues were starting that had something to do with “bitcoin,” which he described to us as a form of “crypto currency.” We knew precious little about bitcoin or crypto currencies back then, nor did we understand what the newly formed company intended to do, but in a classic “bet the jockey, not the horse” move, we agreed to participate in the seed round at the minimum investment level. We immediately marked this equity investment to zero on our personal balance sheets.

In the following months, we engaged in a series of philosophical conversations about crypto currencies with our friend to learn more. Concurrent with this quest for knowledge, the paper value of our modest investment began to soar, which had the understandable effect of increasing the urgency of our research. We distinctly recall drawing two circles on a piece of paper. In the circle on the left, we wrote “real economy,” while in the circle on the right we wrote “crypto universe.” We drew two pipes between the circles – one flowing into the crypto universe and the other flowing back to the real economy – and labeled both pipes with “fiat currencies.” While we understood how fiat currencies from investors could flow in, we failed to grasp what could be occurring within the crypto universe that would create more fiat currency for investors to take out at a later date. There seemed to be many brilliant people excited to be working in the space and using a technical language foreign to us, so we concluded that our inability to understand this rather pertinent issue was a fault of our own making.

Then bitcoin went bananas in late 2017.

They say we are shaped by our experiences, and as bitcoin went parabolic it certainly impacted us. Watching our modest foray into a little understood technology skyrocket in paper value several hundredfold left a jagged mark as it crashed with the rest of the crypto market back to where we had always kept it marked – zero.  Along the way, we did make a few half-hearted efforts to get the outflow pipe turned on – life-changing fortunes are worth bending over and picking up, after all – but since we could not get an answer to our foundational question, we never held out much hope of converting paper into reality. There would be no lambos for the green chicken team.

It is through this tortured lens that we read with some interest a recent article by Sohale Mortazavi, published in the socialist magazine Jacobin. Sporting the provocative title Cryptocurrency Is a Giant Ponzi Scheme, the author pulls no punches in stating what he really thinks of the entire space. What caught our eye was his observation that cryptos aren’t merely a zero-sum game – in fact, inherent in the design of the entire system is a negative-sum occurrence in which the outflow pipe of fiat currencies available to investors must always be smaller than the inflow pipe (emphasis added throughout this piece):

The majority of cryptocurrency mining is now conducted in commercial mining farms, essentially huge warehouses running thousands of high-powered computer processors day and night. The electricity expended mining Bitcoin and other cryptocurrencies is rapidly approaching 1 percent of global usage, which is famously greater than the total electricity consumption of many smaller developed nations.

Given that cryptocurrencies don’t produce anything of material value, this enormous waste of resources renders the whole enterprise a negative-sum game. Investors can only cash out by selling their coins to other investors — but only after the miners and various cryptocurrency service providers take the house’s rake. In other words, investors cannot — in the aggregate — cash out for even what they put in, as cryptocurrencies are inefficient by design.

There’s simply no arguing that if one uses fiat currencies as the determining scorecard, the crypto universe is a Ponzi scheme. The structural costs of mining – which must ultimately be paid for using fiat – aren’t the only thing that shrinks the outflow pipe for regular investors. Outright theft of fiat deposits, whether via hacks, rug pulls, or illegal front-running by lawless market “participants” are a substantial drain on the total fiat floating around in the crypto universe.

Before the bitcoin maxis fill our comments with well-worn whataboutisms, we readily concede the real economy is filled with government-backed Ponzi schemes, legal or otherwise. Take the US Social Security system. New money will forever be needed to pay off old promises and absent the US government’s ability to print unbacked fiat, the entire edifice would collapse. But those systems are blessed by the state, and – by and large – the crypto universe is not. More critically, we believe precious few crypto participants today are in it to support their belief that the final chapter for fiat currencies has been written. They’re in it as a trade and are hoping to leave the crypto universe with more fiat in their traditional banking accounts than they entered with. Most won’t. If you don’t know who the sucker is at the digital poker table, you are probably a HODLer.

Just how much fiat is sloshing around in crypto universe? Because of the fraudulent sleight of hand of fiat clones called stablecoins, crypto investors routinely mark their books in fiat currencies like the US dollar, when in fact they should be marked in the underlying stablecoin, like tether. Bitcoin is not worth 36,000 US dollars, which is about where it is “trading” today. It is worth 36,000 tethers, the dominant underlying stablecoin in which it transacts.

On a recent appearance on the Crypto Critics’ Corner, which published yesterday, we discussed this issue at length (the hosts of the show, Bennett Tomlin and Cas Piancey, can be followed on Twitter here and here, respectively). If one assumes the total value of the crypto universe is marked at $2 trillion, and if the total amount of hard fiat (pun intended) in the system is the equivalent of only a few tens of billions of US dollars, then the leverage ratio of the crypto universe is enormous when measured in fiat. In a true market panic, which may or may not be unfolding as we publish this piece, we suspect many investors would be stuck holding the bag without recourse. These are largely unregulated markets where hacks, thefts, and total exchange collapses are routine.

Our focus on mapping the fiat currency moving in and out of the crypto universe leads us to update our readers on two of the highest profile names in this space: Michael Saylor, CEO of MicroStrategy, and Nayib Bukele, President of El Salvador. We had previously written about Saylor’s adventures with bitcoin here, and Bukele’s here. Both are facing renewed pressure as the crypto markets wobble, both are on the hook for substantial debts denominated in US dollars, and both risk potentially losing control – as unlikely as that might seem now.

For Saylor, we (and many others) have described the dangerous game he is playing, having issued $2.2 billion in dollar-denominated debt to buy bitcoin. This includes $1.7 billion in two convertible notes, which were then subsequently primed by the issuance of a $500 million senior secured straight bond above them in the capital table. The weakest of the convertible notes has a conversion price of $1,432 per share, and with MicroStrategy’s stock trading near $370 a share overnight, the convert option is deeply out of the money. As of yesterday’s close, the bonds are trading in distressed territory, catching only 62 cents on the dollar for a 9.6% yield to maturity.

As first pointed out to us by Mike Green on Twitter, Michael Kao – a convertible bond expert – has been speculating for many months that Saylor could lose control over MicroStrategy in the event of a deep drawdown in bitcoin’s value. Kao argues persuasively that Saylor’s fiduciary is not just to his shareholders, but also his debtholders, especially if the company enters a zone of insolvency. MicroStrategy owns more than 124,000 bitcoins, worth over $4 billion at today’s prices. Note that Saylor doesn’t own these bitcoins, the company does – making Saylor’s personal conviction less relevant. The company’s board might decide to turn off their laser eyes in a time of true crisis despite Saylor’s current position as board chair. If the company liquidated its bitcoin into a downdraft, we suspect we’d find out just how much fiat exists in the crypto universe rather quickly. MicroStrategy’s bondholders can’t be paid back in tethers, after all.

With Bukele, his arrival on the bitcoin scene was a little puzzling to us at first, and our original predictions in the piece we linked to above have yet to play out. Luckily for us, it was among our earliest works and so most of you haven’t read it. Recent developments appear to lay bare his strategy. Like Saylor, Bukele has US dollar-denominated debt, but his situation is a little more urgent. In less than a year, El Salvador has a $800 million bond coming due, and it is currently priced in extremely distressed territory. When Bukele shocked the world with his adoption of bitcoin as legal tender in early June, that bond was priced to yield 6%. If an investor picked up the bond today and held it to maturity, they could expect a staggering 35% return – which says more about the risk of default than it does the attractiveness of the opportunity.

It probably didn’t help matters that Bukele tweeted “DGAF” in response to news that Moody’s issued a fresh warning on the country’s creditworthiness:

Bukele’s hubris likely derives from the revelation that the country intends to issue bonds backed by bitcoin, and to circumvent the traditional banks to do so:

El Salvador’s national adoption of bitcoin was easily the most transformational cryptocurrency landmark in a year full of them. The use of bitcoin as legal tender seems poised to attract a wave of experiments and investment, while a program to mine bitcoin using volcanic energy could be a significant boost for the lower-income economy.

But El Salvador’s recently-announced “Bitcoin Bond” may be the most truly disruptive and empowering part of the project. By selling bitcoin-backed bonds through blockchain infrastructure, El Salvador will bypass the Wall Street banks and international institutions that have had a century-long choke hold on loans to developing economies. There are signs that this could escalate into a full-scale public battle as global financiers angle to retain control of the system.

If we follow the fiat in this proposed offering, Bukele is encouraging fresh investors to come into the crypto universe with new money so he can turn around and use it to pay off his country’s debt. While he would like you to HODL, he literally can’t. While we admire the boldness of his gambit, it is unclear to us what Plan B is in the event of a true crypto washout. Like Saylor, his obligations are firmly entrenched in the real economy. If the leverage ratio of the crypto universe is as high as we suspect it is, the risk of an unraveling is very real.

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Bitcoin's Black Swans (Feat. Doomberg)

 

https://podcasts.apple.com/us/podcast/crypto-critics-corner/id1557045965?i=1000548817257


day Bennett Tomlin and Cas Piancey are joined by Doomberg - Twitter and Substack's favorite Little financial Chicken - to discuss Bitcoin's, and cryptocurrency in general's, biggest threats for maximum liquidations and pain (including, but not limited to: Microstrategy, El Salvador, and Tether).




Follow Doomberg on Twitter @Doomberg or subscribe to their Substack at doomberg.substack.com


If you'd like to subscribe to Bennett Tomlin's FUD Letter, please visit https://TheFUDLetter.com/#/portal/ for details.




Note: This episode was recorded on Friday, January 21st, 2022