True Rags to Riches stories are actually few and far between. We often hear of the biggies; the Jeff Bezos’ story, the Bill Gates story, the Steve Jobs’ story or even Warren Buffett’s history. The thing that is common among most of the ones we know is that they tend to be tech gurus or famous investors. They’ve all built companies that are the envy of the world and become famous along the way. But how often do you hear about a guy who only went to high school, was given a junkyard, and was able to turn it into a multi-billion dollar company? Not often, I bet.
Willis Johnson’s incredible story is a rag-to-riches tale of a budding young American entrepreneur who scrapped and saved, kept trying new things and ultimately turned a small auto junkyard into a multi-billion dollar business. An investment in Willis’ Copart in 1994 has been a veritable 150-bagger!!
Johnson tells the story of Copart in his 2014 auto-biography ‘Junk to Gold’. An easy read, it contains a wealth of business wisdom and life lessons. Johnson’s passion for wheeling & dealing emerged while buying, dismantling and selling old cars as a teenager with his entrepreneurial father. It also tells how he was conscripted to the US Army and did a tour of duty in Vietnam where only half his unit survived, how he also earned a Purple Heart and some new skills to apply to the dismantling yard he purchased on his return. With his newly acquired junkyard, Johnson strived for growth.
In the words of Charlie Munger, Johnson is a ‘Talented Fanatic’ who disdained standard industry practice. Instead, he introduced clean and organised stores that more closely resembled a retail store than the typical ‘bunch of wrecked cars in a field’. He was the first to dismantle not just cars, but parts, which he refurbished for sale. Introducing an industry catalogue and improving customer communications made him a valued partner to customers.
Like Charles Schwab at Schwab Corporation, Willis wasn’t afraid to embrace new technology if it meant increased efficiency and improved customer service. It also provided a jump on competitors. In Sam Walton style, Willis unashamedly copied ideas from everywhere: competitors, other industries; even Disneyland and a John Wayne movie.
As Willis redefined the role and scope of junkyard operations he built scale through acquisitions. Never shy of trying new things, Willis jumped at an opportunity to add a salvage auction business to his broadening interests. Introducing new technology, leveraging national scale for customers and introducing a new innovative pricing mechanism that turned the customer incentive structure on its head, Willis expanded the salvage auction business to become the core of the multi-billion dollar enterprise that Copart is today.
I’ve included some of my favourite extracts from the book below..
“Earn a PhD in Common Sense. The time I spent as a kid with my dad was much more of an education for me than what went on between school bells.”
Know What You Don’t Know
“I know what I don’t know. I also think it’s a good idea to learn as much as you can.”
“Both my dad and I also built reputations in the business world of always standing by our word and never doing business if a deal felt wrong. We both walked away from opportunities that may have helped our businesses but would have crossed a moral or ethical line.”
“With any deal, you want to treat folks right, like you’d like to be treated.”
A Bias For Action
“Although times were hard [in the early days], I never stopped dreaming big and looking for something better.”
‘Think of us [Copart salvage auctions] like the local sewer system. We’re a utility. Nothing can get rid of us – nothing. Two of the biggest businesses in the world are car manufacturers and insurance companies. If insurance companies don’t write insurance policies on cars, then they’re out of business. If manufacturers don’t make cars, then they’re out of business. They’re always gonna make cars, and they’re always gonna insure them. We’re the guy in between. As long as we’ve got the land in the right place to put the cars on, we can’t fail. We are like the septic tanks of the sewer system. You can’t have the system without us.”
“Dad also had an expression: ‘Take care of your pennies and the dollars will take care of themselves.’ It’s a phrase I have also passed on to others so they would learn the same lesson I learned from him – that small amounts of money can add up to either big profits or big losses. You can’t ignore the small expenses or the small amounts of money unaccounted for if you hope to succeed at the end of the day.”
‘I tripled the income at the yard by taking good care of customers and calling body shops and mechanics to tell them what inventory we had in stock.”
“Be your customer’s most valuable partner. My continued passion for the business helped me find new ways to innovate Copart. One of the biggest innovations was the Percentage Incentive Program, or PIP, which I started as a test with the Fireman’s Fund – an insurance company that was a client of Copart. I knew I could get the insurance company more money if I cleaned these [smashed] cars up [before sale], but I also knew I would have to charge the insurance companies for that service. That was a problem because insurance companies didn’t want to pay you to clean up a wrecked car. To them it was junk so I had to find another way.
I proposed a deal to the Fireman’s Fund. Instead of charging fees [to transport and auction the wrecked cars], I would keep a percentage of the sale price for each car. The Fireman’s Fund was thrilled because they were seeing their returns go up. And I was watching Copart’s profits go up with the returns. But maybe, most importantly, PIP represented a significant shift in the industry. Now the salvage auction was a partner with the insurance company, with the goal of getting the best possible price for each car, eliminating any arguments over fees.”
“Copart needed to provide not just a good service but legendary service – service that left customers saying, ‘Wow, how did they do that?’ and telling others about the experience.”
“Do the right thing. Through the [Katrina Hurricane] ordeal, Copart did not pass any of its added costs on to its customers. Copart chose to absorb costs because it was the right thing to do. Copart also absorbed costs because it wanted to prove to its customers it was not just a vendor but a business partner they could rely on even at the worst possible time.”
“Be careful who you go into business with. [At the Copart IPO] Most investors thought it was all about them liking me. But in my case, I also had to like them. I wasn’t doing business with just anyone with a cheque book. I have to trust you – and you have have to be someone I feel good about being associated with.”
Stick to The Knitting
“One thing I’ve taught all the executives in the company is that while you may be good in our business, that doesn’t mean you are good in any other business. Don’t get a big head and think you know it all, because that’s when you lose. You’re really good in the car business. You’re really good in the recycling business. You’re not necessarily good in everything else, and you need to understand that. Stay with what you are good at, venture out if you see an opportunity, but pull your horns in if you make a mistake.”
“The military teaches you order, timing and discipline. It teaches you how to work as a team. It was the best education I could get.”
“[The military] taught me cleanliness and order. Keeping things lined up makes for efficiency. In the military, we were told to face right and line everything up shoulder to nose. I bought that back to the dismantling business, lining up the cars in the yard in a perfect row. I also learned that a coat of paint helped cover up a lot of bad stuff and was the cheapest way to make something bad look good.”
“The war taught me how to make the best decisions for the people around me, not just myself.”
“I built Copart’s culture on change and embracing new ideas.”
“I’m not afraid to break the mould and go where no one else has gone before. When people tell me, ‘Willis you can’t do that,’ it just pushes me to show them I can.’”
“I expanded the [scrapping] business to a large dairy farm next door and got it zoned so they could rent out some of the land to local dismantlers. Customers going to the other dismantlers would have to drive by our yard first, which led to more business. I would also purchase parts from other dismantlers and turn them for a profit. Dad didn’t like this at all. He didn’t want me helping his competitors make money – even if it meant we made more money.”
“My dream was to build up the parts side of the scrap business was starting to come true. As I was able to buy better cars, [I] was able to stock more and better parts, including motors, transmissions, and rear ends. As this happened the business relied less on scrap iron, which gradually went from the main revenue stream to a byproduct of the parts business.”
“I was the first in the industry to dismantle parts, not just cars. By the time I was done, I could get $700 for the same parts sold separately that were sold together by my competitor [as a whole engine] for $400. And the customer was happier. I also had fewer buy-backs because I didn’t have to guarantee all the parts on the motor. This caused my profit margin to far exceed that of my competitors.”
“I knew that to really compete with other auto dismantlers in the Sacramento region, I would need to do something different… If we were going to compete, we needed to specialise in a car the other dismantlers in town didn’t want to carry.”
“I’m not the kind of guy who says, ‘Look, kid, I’ve been doing this for twenty years, and I’m not interested in changing.’ I never have a problem if someone tells me something is broken. I have always wanted to do things better and improve on the model.”
“Taking chances and changing things up made Copart what it is today. It’s the spirit of the company, and that spirit will never change.”
Build A Brand / Geographic Reach
“Now a public company, Copart had the resources and reputation needed to expand its footprint so we could not only keep up with IAA but also continue to be able to give big insurance companies a broader geographical range of services.”
“I wanted to be able to build a network of locations so I could take on national contracts. I didn’t want just to be able to handle some of Allstate’s cars; I wanted all of them.”
“I just didn’t want to grow to grow. I wanted to build a brand. I wanted anything with a Copart logo on it to run the same way – same computer system, same pricing, same way of treating our employees – so people started relating our name to a certain way of doing business.”
“Most people kept paper records of all their parts. But I was one of the first in the business to computerise inventory. I spent $110,000 on a large reel-to-reel computer, about double the amount most people spent on a house at the time. Other people thought I was crazy (or stupid – or maybe both) to spend so much money on a computer for a wrecking yard. But I was never afraid to spend money on technology if it could help us be more efficient. And it turned out that the whole industry would end up computerising once they saw the benefits it gave people. As large and foreign as this machine seemed back then it paid off because it gave me a complete picture of the business and the inventory, which in turn gave me more knowledge and control over the yard which helped me make money.”
“Any company today has to pay attention to technology and how the world is changing and incorporate that if it wants to survive. You can’t do things the same way and expect to be around in ten years. The world moves too quickly.”
“VB2 [a Virtual bidding tech platform] put Copart ahead of the technology curve. But it had not just been VB2. The fact we computerised early, the company developed CAS to share data and keep track of all its inventory, and [we] embraced the internet when it first came out all led up to Copart being prepared to develop and implement technology ahead of its competition.”
“Ideas can come from anywhere – even John Wayne. One rare night, I was in the trailer watching an old John Wayne movie about WWII. In the movie John Wayne kicked down the doors of a Quonset hut that housed the officer’s club. The movie made me think of my own prefabricated, semicircular steel hut in a new light. I thought, Well, if they can make it look decent in the movie, decorate it all up for officers, maybe I can do that.”
“I’d mine other wrecking yards for ideas I could take home and implement. We’d suck in all their ideas, and they didn’t care if they told us because we weren’t direct competitors.”
“You have to do your research and if you don’t stay on top of reading about other people’s ideas, you never come up with ideas yourself. It’s good to learn from others.”
“Learn from Walmart. What made the U-Pull-It model [wrecked cars on stands where hobbyists/home mechanics pay an entry fee to come in and dismantle cars parts themselves] unique was the high volume of cars it could turnaround. I liken it to the Walmart of dismantling.”
“Make your business like Disneyland. I got my inspiration to create new services within my companies from Disneyland. Disneyland to me was a model of how to build businesses within a business. I paid a fee to get in the gate. And then I went to a restaurant, I paid to eat and drink. Then I paid at the gift shops. I paid for tickets to the rides. Everything I did was another business. Okay, I’ve got to find a business that has multiple revenue streams within it. Disneyland taught me about building other revenue streams. Every time you can add revenue streams to the same pipeline, the profit margin change drastically. You are putting more through that pipe.”
“If [employees] have the ability to speak their mind, the company benefits too because that’s when great ideas are born”
Tone From the Top
“I never expected anything from anyone that I wouldn’t do myself. I used to dismantle cars alongside my employees.”
“If employees are happy, that translates directly to how we treat our customers and how we can move forward as a company.”
“I always made sure I knew what the average pay was in the area and paid more and gave more benefits. I didn’t want people to leave, and I didn’t want them to be in a union.”
“Tell them you love them. We learnt it wasn’t just enough to treat your employees nice, give them good benefits, and hope they got it. We treated the employee nice, gave them as many benefits as we could, and treated them like we didn’t want them to leave – because we didn’t. But we didn’t tell them we loved them; we didn’t show them how much they meant to the company. That’s where we had fallen short.”
“From 2002 Copart was going to be a company that didn’t just hire based on skill-sets or IQ. It was going to hire based on attitude – EQ. We were going to be a company in which people liked their co-workers and had fun at what they did.”
“Becoming a big, public company, we decided, didn’t mean we had to sacrifice having a culture where people worked hard, had fun and were rewarded for it.”
“Admit your mistakes. Everyone makes bad decisions, and I’m not immune. The good thing about Copart is even though sometimes we have bad ideas, we learn from them and correct them. Any time you make a mistake or bad news comes and you’re really upset about it, remember there’s a lesson in it. Just chalk it up as a lesson, and don’t let it happen again. When you lose a customer because you bid wrong, don’t get mad at the customer. Ask yourself, ‘What did we do wrong to not get the contract?’”
Although I didn’t mention them above, Willis’ expectation that people weren’t going to fly as much after 9/11, but rather drive, gave him the insight that more cars were going to be wrecked allowing a better preparedness for growth. It’s little kernels of history like this that can spark ideas in situations we face today.
Willis’ analogy of the ‘local sewer system’ is useful mental model when thinking about other businesses. So is inverting the pricing mechanism for salvage auctions from fixed prices to a commission structure that instantly aligned the customer with the auctioneer. It created a win-win relationship where both parties benefited from higher prices. When combined with the national scale to reduce the transportation costs of salvaged vehicles, it provided a competitive advantage difficult to replicate. Applying technology for efficiency and geographic reach [via virtual bidding] made the company’s moat even wider. The makings of a Lollapalooza effect!
“Extreme success is likely to be caused by adding success factors so that a bigger combination drives success, often in non-linear fashion, as one is reminded by the concept of breakpoint and the concept of critical mass in physics. Often results are not linear. You get a little bit more mass, and you get a lollapalooza result.” Charlie Munger
While not all great businesses share the same characteristics, they often have at least a handful that unify them. In the case of Copart, those common themes include being close to the customer, win-win relationships, scale advantages, a large runway for growth, constant innovation, embracing technology, valuing employees, good culture, first mover advantages, sticking to the knitting and tone from the top. And let’s not forget the creative fanatic driving the whole process, Willis Johnson.
‘Junk to Gold’ by Willis Johnson. 2014. Westbow Press.
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Read more great articles at Vintage Value Investing.
Title: Learning From Copart’s Willis Johnson
Sourced From: www.vintagevalueinvesting.com/learning-from-coparts-willis-johnson/?utm_source=rss&utm_medium=rss&utm_campaign=learning-from-coparts-willis-johnson
Published Date: Wed, 03 Jun 2020 06:15:10 +0000
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Are These Marijuana Stocks Built For Long Or Short Term Success?
Would You Invest In These Marijuana Stocks In 2021?
For the last several month’s investors have found a renewed interest in marijuana stocks. From mid-2020 to currently in 2021 cannabis stocks have been on the move. Many pot stocks from various niches have been rising in the market. Some marijuana stocks have not only reported record earnings but some have seen back-to-back all-time highs. With the amount of money being invested with the hopes of federal cannabis reform, people are trying to jump on board before the boat leaves the dock.
The cannabis sector as a whole has been on fire. Many companies in the cannabis industry have been preparing for what’s next to come. Meaning most cannabis companies are making operational adjustments to be able to adapt to the future of the cannabis industry. For example, 2 big-time cannabis companies both teamed up to make the biggest cannabis company on earth. Tilray Inc. and Aphria Inc. joined forces which have helped both companies market performance to a degree.
As well other companies have taken notice and may follow the same path. A lot is changing for the cannabis industry between legislation, more states going legal, and new regulations. All these variables play a factor in how this sentiment impacts the market. With more positive sentiment taking hold of the market is reflects in how well some marijuana stocks trade.
So far in 2021 cannabis stocks are moving up and seeing overall bigger gains. For this reason, many new and seasoned investors are looking to get involved and make some money. The cannabis industry is one of the fastest-growing markets in the world that is continuously expanding. The 2 cannabis stocks below are examples of when the sector is trending it resonates well with how marijuana stocks can or will trade.
Pot Stock Watch List This Month
Green Lane Holdigns Inc.
Green Lane Holdigns Inc. has been of the many marijuana stocks trying to climb higher in a volatile market. Back in 202 GNLN stock saw its price fluctuate quite often. This price fluctuation allowed for good entry points before GNLN stock had a spike in trading. Like many marijuana stocks, 2021 gave the cannabis market a nice push to start the new year. With Green Lane 2021 was no different.
In the first 2 weeks of the new year, GNLN stock shot up 25 percent in trading as it was starting to dip from this point. Even though Green Lane closed out the first month of the new year with a drop from previous highs in January the following month was a different story. Currently GNLN stock in February has been able to recover from January’s dip.
The company has been able to even reach higher highs than last month. Within the first trading week of February, GNLN stock saw gains of 27 percent. This was a much-needed momentum booster to help the company recover from its trading at the close of January. So far for in February GNLN stock has had a nice upward push in the market showing over 60 percent gains in trading. This current momentum has signaled to investors that Green Lane may be a marijuana stock to watch in 2021.
- 3 Top Marijuana Stocks To Watch This Year
- Will Cannabis Stocks See A Rise In Trading With Chuck Schumer Push For Federal Cannabis Legislation?
Liberty Health Sciences Inc.
Liberty Health Sciences Inc. has been an interesting cannabis stock to watch. Like many other cannabis businesses, it’s going to take more than a pandemic to stop the company from expanding. Back in January, the company announced that it will be opening a new location adding to its current portfolio of dispensaries. The Company plans to open two more dispensaries by the end of February 2021 with much more in the works.
Although in 2020 LHSIF stock traded mostly sideways with subtle spikes in trading the new year has provided a strong push in trading. Starting from December 21st LHSIF stock started to bounce and began to climb in the market. From the 21st to the 31st of December LHSIF stock shot up 90 percent. For those who held their position until this point, they made a healthy return on their investment. Pushing into the new year the company was able to sustain its market momentum and keep pushing up in the market.
In the first 14 days of trading of the new year LHSIF stock has a 13 percent increase in trading. The remainder of January’s trading resulted in a small dip. Yet overall gains for the first month of 2021 for LHSIF stock was an increase of 8 percent. This was a subtle push that helped the company sustain its current market position. Now that we have entered February LHSIF has continued to trade up in the market. Currently for the month of February LHSIF stock is up over 25 percent. If the company can continue this momentum it would intrigue more people to keep an eye on this marijuana stock.
By: Daniel Chase
Title: Are These Marijuana Stocks Built For Long Or Short Term Success?
Sourced From: marijuanastocks.com/are-these-marijuana-stocks-built-for-long-or-short-term-success/
Published Date: Thu, 11 Feb 2021 13:30:07 +0000
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Price to Earnings Ratio Defined (P/E Ratio Formula)
Trying your hand at the stock market? Chances are, you’ve come across the term “P/E ratio”. If you’re like many who are new to the stock market, you’ve looked at this phrase and asked yourself, “What in the world is that?”
P/E ratio, otherwise known as the price-to-earnings ratio, is a formula that investors use to determine the value of a company’s share. It is one of the most common formulas used to determine the value of a stock. The formula compares the price of a company’s share to the earnings per share (EPS) of the company in order to determine how much an investor is paying for $1 of the company’s earnings. Let’s take a deeper dive into the P/E formula. Use the links below to jump ahead to a section of your choosing.
P/E Formula and Calculation
First thing’s first: let’s learn the price to earnings ratio formula and how to calculate it. The price-to-earnings ratio formula is as follows: the price of a single share of a company’s stock (What is a stock?), divided by the company’s earnings per share (EPS). The ratio of these two variables will tell you exactly how much an investor is spending for a single dollar of the company’s earnings.
Finding the cost of a company’s stock is extremely simple. In order to find the price of a single share of a company’s stock, all you need to do is enter the company’s stock ticker symbol (the series of characters that represents that company on the stock market) into a finance website, such as investor.gov. You’ll quickly find the current cost for a single share of that company’s stock. Google also keeps an up-to-date Market Summary for the prior day’s stock market, so a quick Google search will often bring exactly the answer you’re looking for.
Determining a company’s earnings per share (EPS) can be a bit trickier. Earnings per share are broken down into 2 categories: trailing earnings and forward earnings. Trailing earnings, often shortened to TTM, are the company’s core earnings over the trailing, or prior, 12 months. This number is the profit that the company has generated over the past 12 months of business. Remember that we’re talking about the net income of a business, rather than the gross income (Need a refresher? Learn more about gross income vs net income.). P/E ratios calculated with trailing earnings are known as the trailing P/E (P/E TTM). Forward earnings, on the other hand, are the predicted earnings that the company will generate over the next 12 months. P/E ratios calculated using forward earnings are known as the forward P/E. Both types of earnings are divided by the total number of public shares on the market in order to generate their EPS. More on this later.
Let’s try out an example. Say you’re looking to determine the trailing P/E of a fictional company AlphaBet Corporation, known on the stock market as ABC. Their share price is currently at $50 per share. Their trailing earnings per share is $5. Divide the $50 per share by the $5 EPS, and you’re left with a P/E of 10. This means that investors are paying $10 for every $1 in earnings per share.
Understanding P/E Ratio
So, ABC has a P/E of 10. What does that mean for you?
In the most general sense, the lower a P/E ratio, the less an investor is paying for each dollar of a company’s earnings per share. A higher P/E ratio means that an investor is paying more per EPS. But, unfortunately, determining which stock to buy isn’t as simple as “look for the lowest P/E ratio”.
It is imperative to remember that everything on the stock market is relative. “Good” and “bad” numbers are different for each and every industry. An electronics company and an automotive company are functioning in two vastly different landscapes. Therefore, in order to determine what is a good price to earnings ratio, you’ll need to understand the landscape of P/E ratios in the industry. Look at similar companies’ P/E ratios to better understand the relative value of your company’s P/E ratio. If ABC’s price-to-earnings ratio seems extremely high as compared to other companies in the industry, it may be an overvalued stock. On the other hand, if it seems extremely low as compared to other companies in the industry, it may be a very valuable stock.
Let’s try another example. We’ve already determined that ABC’s price is $50 per share, earnings are $5 per share, and P/E is 10. A competitor, DOG, also has stock for $50 per share. Their earnings, on the other hand, are $2 per share, making their PE 25 (50/2=25). An investor would pay $10 for every $1 of ABC’s earnings per share, but they’d have to pay $25 for every $1 of DOG’s earnings per share. With a better understanding of the landscape, we can see how ABC sits relative to its competitors.
A company’s price to earnings ratio may also be looked at relative to itself. Remember those two types of earnings we reviewed earlier? We can compare a company’s trailing P/E to their forward P/E to better understand the value of a stock. A company with a high trailing P/E ratio may have been rather unprofitable the prior 12 months because theywere preparing to ramp up business substantially, and took on a number of upfront costs. They may be expecting a boom of profits over the forward 12 months, leaving them with a substantially lower forward P/E. By reviewing these numbers in comparison to each other, we may see an opportunity for a long-term investment.
Limitations of the P/E Ratio
While the price to earnings ratio is certainly one of the most widely used calculations among stock market investors and analysts, it’s not a cut and dry way to determine a good or bad stock. It gives investors a good understanding of the value of stock in a particular moment, but it certainly has its short-comings.
Just as the stock market is relative, it’s also in a constant state of fluctuation. It is re-evaluated and recalculated constantly. Why does this matter when it comes to the price to earnings ratio? Well, just look at the variables we use to determine the P/E ratio.
First, we have the “price” of the price-to-earnings ratio: the cost of a single share of a company’s stock. Stock prices fluctuate every single day based on supply, demand, current events, and more. Typically, the cost of a company’s stock will be reported as the cost that it was when the stock market closed the prior day. Each time a company’s stock price changes, their P/E ratio will change. Certain companies may tend to have a greater fundamental volatility than others, leaving their stock price changing substantially each and every day. Even those with low fundamental volatility experience routine fluctuation.
Next, we have the “earnings” in the price-to-earnings ratio. Both trailing and forward P/E ratios have their limitations. Trailing P/E can feel like the more reliable of the two numbers because it’s based on facts. We take their actual earnings over the prior 12 months into account. But, in many situations, a company’s prior 12 months may have little to do with their next 12 months. As mentioned earlier, a company may have spent heavy the prior 12 months in preparation to ramp up the next 12 months. The trailing P/E won’t show us any of that. The forward P/E, on the other hand, is based on predictions. And predictions are quite educated guesses, but at the end of the day predictions are still guesses. A company may fall short of their predicted earnings or blow completely past them.
Looking to try your hand at the stock market? Don’t go at it alone. Consider opening an investment account with Mint. We believe that there’s no “one-size-fits-all” approach to investment. That’s why we offer a variety of investment partners, suited to each particular need. Let’s find the best to suit yours.
The post Price to Earnings Ratio Defined (P/E Ratio Formula) appeared first on MintLife Blog.
Title: Price to Earnings Ratio Defined (P/E Ratio Formula)
Sourced From: mint.intuit.com/blog/investing/price-earnings-ratio/
Published Date: Tue, 25 Aug 2020 19:37:02 +0000
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Will Marijuana Banking Be Apart Of Federal Cannabis Reform?
The Cannabis Industry VS Financial Institutions
As marijuana stocks and the cannabis industry as a whole awaits federal cannabis reform the sector keeps trending. Now if the U.S. can federally decriminalize cannabis some analysts feel it may cause some cannabis stocks to rally. As well as many new doors will that can open. For one many new markets will look to join the U.S. cannabis industry. Furthermore, with federal cannabis reform, it could be the start of initiating a banking system for the industry.
Currently due to cannabis still being federally illegal banks can not take money from a cannabis-related business. From the time states started going legal, it has been an issue that has yet to be resolved. The cannabis industry is one of the fastest-growing industries in the world, especially in the United States. Politicians have been working to pass various pieces of cannabis legislation.
The one bill that would be beneficial to the industry is known as the SAFE Banking Act. This bill would allow banks to accept money from cannabis-related businesses. On March 7, 2019, the bill was introduced to the U.S. House of Representatives by Ed Perlmutter and was introduced to the Judiciary and Financial Services Committees. Back in 2019, the Financial Services Committee voted 45 to 15 to advance the bill to the full House.
The SAFE Banking Act provisions were included in the HEROES Act COVID-19 relief bill passed in the U.S. House in May 2020. They were again included in a bill approved by the house 214–207 in October. A push to include the SAFE Banking Act provisions in the end-of-year COVID-19 stimulus failed, though hope remained it could pass in 2021 if reintroduced.
How Will The Cannabis Industry Work With Banks
When it comes to any business you can think having startup capital is important. Now not every person with money is willing to invest in a new venture which makes finding that more of a task. Especially with cannabis-related business and right now banks are no help. For a business to acquire a line of credit or some type of lending your business must be able to have some type of financial record.
This usually tells banks and lenders how good you are at paying things back and how reliable you are to do so. The bigger obstacle for cannabis businesses is how do you show you are trustworthy with no credit history. Once again this due to financial institutions not working with cannabis businesses. Let’s look at a few steps to help jump over some red tape.
First, you should start a new business that is a separate company from your personal credit. This will help when it comes time to do your taxes. The second step to take is you need to register for your EIN number. Next thing to do is open a new bank account and make sure you can show that you have continuous income which shows financial stability. Again with banks not accepting cannabis money the last step may be next to impossible to do.
- Are You Up To Date On The Cannabis Industry In 2021?
- Are These The Best Marijuana Stocks To Buy For Long Term Cannabis Investments?
Will Cannabis Banking Actually Happen?
The way financial institutions offer other industries various banking options is not the same for the cannabis industry. Although there is some grey area with cannabis and banks yet most banks won’t offer services for how high risk the industry is. This leaves many cannabis businesses left out from what other traditional retail businesses would have. Look past the risk banks also look at taking cannabis money as to much work. This would result in following regulations and keeping data on all money. This process has been established by the Bank Secrecy Act of 1970. Also, working with the large amounts of cash cannabis businesses generate may affect how a bank can operate.
With this roadblock between banks and cannabis money, it shuns cannabis businesses from establishing a form of credit. This issue alone is why the industry operates only in cash with very few places to keep it. Also, this issue can do much harm to future relationships with other companies and businesses. If a cannabis business can not establish a credit history no lender or bank can help. That’s why it’s important to have an industry as big as cannabis have some form of credit being reported to credit companies. This will tell other lenders and banks that a particular business is profitable enough to pay back any loans.
What Will The Future Of Cannabis Banking Become
It’s wild to think that an industry that is generating a high volume of cash is being blocked from showing the reliability needed to secure lending. Some feel if the cannabis business can earn the trust of financial institutions by being transparent with its earnings. This may be a step to banks feeling more comfortable with working with a cash-intensive business. Hopefully, with federal cannabis reform, it will help push cannabis banking in the direction needed to help out the industry.
By: J. Phillip
Title: Will Marijuana Banking Be Apart Of Federal Cannabis Reform?
Sourced From: marijuanastocks.com/will-marijuana-banking-be-apart-of-federal-cannabis-reform/
Published Date: Tue, 09 Feb 2021 18:34:56 +0000
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