Plugging State Finances with Cannabis, Build America Bonds and Crypto Mining

By Dan Weiskopf, ETF Professor

What do Cannabis, Build America Bonds and Crypto Mining have in common? Answer: all three could be a part of the solution to solve state deficits and lead to continued economic growth in America. Last Friday, U.S. job growth in March showed an improvement of 916,000, and February employment was revised up to a 468,000 gain. This is all very exciting, especially when you consider that there was “a surge of 280,000 in leisure and hospitality – including 176,000 in food services and drinking places.” In retrospect, there is remarkable evidence behind the optimism for this recovery and arguably, the $1.9 trillion infrastructure plan is the icing on the cake. However, the recovery will be felt differently across the states, depending on their deficits and type of employment.

Government Needs to Embrace New Age Industries to Plug Economic Holes

Optimism can be measured by both the Unemployment rate now clocking in at just 6%, and by the fact that the bottoms up earnings estimate for the S&P 500 is nowhere near the $196.81 that it was in Q1 2020. In fact, according to FactSet, earnings for the S&P 500 are now looking to rebound from $167.37 just three months ago to $175.75. So why should the forward 23 multiple be justified off of a current 30 multiple? Answer: new age industries are popping up, like the Marijuana and Crypto Mining industries, that can provide a new source of revenue growth. We think this potential revenue growth will also help to solve state deficit problems that need to be plugged. This is important because it gives some traditional industries some time to evolve and rebound. The fact is that all industry dynamics change with technological evolution, demographic changes and social demands. As an example, the restaurant industry remains about 1.8 million people below their pre-pandemic employment levels. The restaurant industry employed 12.5 million people in the U.S. in 2020, 3.1 million less than expected levels. How this industry changes affects millions of lives and yes, state budgets. For example, see how people are employed by state according to the Restaurant Association. Depending upon the state’s debt level and deficit, employment may not rebound to the levels once experienced unless people looking for a job shift to new industries, like the cannabis industry. New York took the plunge just recently, and South Dakota and New Mexico are the latest to push for legislative approval. It is estimated that both New York and New Mexico may see $350 million in new tax revenue in the future as a result; and 60,000 or so more people employed. In 2020, California and Colorado reportedly took in over $2 billion and $1.5 billion respectively. (See Marijuana Tax revenue: A State-by-State Breakdown). Those are big dollars!

Build America Bonds and Crypto Mining play different roles in solving the problem. Build America bonds could be available to plug the temporary financing holes and target further infrastructure spending by the states. For those who don’t remember what Build America Bonds are, here is a link to a great video that describes how states would save money if the 2009 program was reinstated. Bottom line, we know that certain states now have credit ratings that are weaker than what they were pre-pandemic and we know that higher taxes on the wealthy may support tax free bonds. However, the ultra-wealthy, as buyers, will flee if tax rates go too high, so re-instating this program would attract a broader spectrum of buyers for such bonds, therefore increasing revenues. Crypto Miners are an infrastructure play by virtue of their support of the Blockchain ecosystem which, as of March 2021, is running at a global revenue rate record of $18 billion. Thankfully, due to low cost power generated in Buffalo, this industry may become a great resource for tax revenue in New York, but other states with low energy costs could benefit. (Link) Ethereum is used for NFTs, and potentially for tracking food and marijuana. It seems clear to me that ultimately, tracking the source of marijuana will be important; why would a decentralized network not be the ideal source of verification? To learn more about how an Ethereum miner works here is a link. According to CoinDesk, it may surprise many people to learn that the bitcoin mining revenue for March 2021 was at a $1.5 billion rate, and much of this revenue today flows to the bottom line. Please know that we are not suggesting that the government subsidizes the build out of crypto mining through Build America Bonds, but arguably there would be a benefit to tracking the supply chain and sale of marijuana on the blockchain. Note that such a hypothetical may have some element of reality to it. There are 4 Alt-Coins that have languished with little success (Link). Much like so many of our links in this article, we point this out as a matter of education only.


Restaurant revenues in the U.S. came in at $659 billion, $240 billion less than expected by the Restaurant Association. While we admit that there are not clear synergies between crypto, restaurant and marijuana, we think what is most important is the message that the world needs to adapt to changing times and evolving financial economic conditions. For the purpose of economic survival, states and people need to embrace these changes. We don’t know the future, but we definitely believe that circumstances are evolving and we hope the States/Federal Government bring back Build America Bonds as part of the financing solution.

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