The Cannabis Opportunity Zone Fund
BaseCanna and the Opportunity Zone: Tax Incentives Attract Investors
The Opportunity Zone was created through the Tax Cuts and Jobs Act of 2017. The purpose of the Opportunity Zone is to encourage long-term investments in mostly low-income urban and rural communities, in part by providing major tax incentives. Governors of each state have the power to identify their zones. The legislation’s co-sponsor, Senator Corey Booker, has said “…there are opportunities out there for savvy investors, especially people who have a heart and mind toward moral capitalism.”
What You Should Know about the Opportunity Zone:
- In order to invest in an Opportunity Zone, you must invest in an Opportunity Zone Fund: you can’t invest as a private investor, rather, you must invest through a Fund.
- Investing in an Opportunity Zone Fund provides significant tax incentives to investors. You can leverage the fund to either defer capital gain until 2026, or simply make a new investment whereby the new capital gain could be completely tax free.
How the Opportunity Zone Works:
- You can invest any capital gain from any legitimate source — stocks, bonds, cryptocurrency, real estate, etc. — and defer the capital gain tax until 2026. If you invest in an Opportunity Zone for 5 years, you earn a 10% discount on your capital gains. If you hold that investment for two more years (for a total of 7 years) you will earn a 15% discount on your capital gains. In order to maximize the capital gain discount, you need to invest by the end of 2019.
- If you don’t have any capital gain investment dollars to shelter through the Opportunity Zone Fund, you can simply make an investment. If the fund holds the investment for 10 years, any capital gain is completely tax free. Yes, that’s right, 100% of your capital gain is completely tax free. Plus, there is no maximum on this tax benefit.
BaseCanna has created an Opportunity Zone Fund
Here is how it works:
Opportunity Zone Funds are required to take physical ownership of the real estate in the zone; the same amount invested in the net improvements to the real estate (the building) must also be invested into its operations (the project). You have a 30-month period to invest fully into the operations. The operational investment must be something tangible, like machinery or equipment or physical upgrades to the property.
For instance, BaseCanna DTLA (our licensed cannabis facility) is in an Opportunity Zone. We plan to purchase the building for $4.9M, and expect the land to be valued at $2.5M. Therefore, we will have 30 months to invest a minimum additional $2.4M (the same amount invested in net improvements) into the operations. Given the capital required to redevelop a site for cannabis (equipment and machinery), the Opportunity Zone is a perfect prospect for BaseCanna and our investors. BaseCanna CEO Jack Boyajian said, “The Opportunity Zone is extraordinary for two reasons. First, the cash flow plus tax incentives for our investors are remarkable. Second, we have an opportunity to leverage cannabis to transform low-income communities that have been traumatized by the criminalization of cannabis. Our Opportunity Zone investments will not only improve entire neighborhoods but also provide good paying jobs to communities that have been harmed by cannabis prohibition.”
If you’d like to learn more about Opportunity Zones or BaseCanna, visit basecanna.com/oz for more information.
Let us know what you think about Opportunity Zones in the comments! :)
