Following the recent release of a government memo noting that law enforcement has identified 270 illegal cannabis operations in Maine alone, the state’s congressional delegation has sent a letter to Attorney General Merrick Garland requesting information on the Department of Justice’s efforts to prevent the illegal ownership of foreign cannabis cultivation.
“These reports of illegal cultivation within the state are troubling, and we are writing to request additional information about what the Department of Justice is doing to address this situation,” the bipartisan group of lawmakers wrote in August. The problem they seek to address, however, extends far beyond Maine and has prompted a legislative response in nearly every state capitol. As Politico mentionted in March, “Chinese investors, owners and workers have emerged in recent years as a new source of funding and labor for illegal marijuana production.”
“What is known – from interviews with government law enforcement officials, international drug trade experts, economists and lawmakers – is that the number of farms financed by sources traceable to Chinese investors or owners has skyrocketed,” the report said. Natalie Fertig of Politico. “Chinese owners and workers have become a bigger presence in illegal crops in Oklahoma, California and Oregon, they say.”
Meanwhile, in October, the Chinese owners of a property in Reedley, California, were charged by the US Department of Justice with operating an illegal biolab. On November 16, the US House Select Committee on the Chinese Communist Party revealed a report about her investigation into “the illegal biolab linked to the People’s Republic of China discovered at Reedley,” which included a number of disturbing findings.
In an effort to prevent such activities and due to concerns about national securities, legislation restricting Chinese and other foreign investment in the US has been introduced in all 50 states in the past year alone, with 37 of these bills being enacted. One of these 37 new laws was signed by Florida Gov. Ron DeSantis (R-Fla.) in May. That Florida law “restricts the issuance of government contracts or economic development incentives to, or ownership of real property by, foreign principals that are certain persons and entities associated with foreign countries of concern.” Countries of concern listed in the bill include China, Russia, Iran, North Korea, Cuba, Venezuela and Syria.
Florida officials are now in the process of approving the regulatory framework to implement this law. As they do so, investors and other financial actors are urging state regulators to clarify that the new law does not prohibit intrastate investment by funds, companies and corporations in which a de minimis equity stake comes from passive foreign investors. This clarity is vital, and failure to provide it would have negative unintended consequences for Floridians and the state economy as a whole.
Florida had the nation’s fastest-growing population last year. In such a rapidly growing state, a lot of new housing construction is needed to keep up with demand and prevent further housing cost inflation. If Florida regulators do not clarify that Florida’s recently enacted foreign real estate investment ban exempts U.S.-controlled entities with a small equity interest derived from passive foreign investors who do not have power over the entity that controls the real estate; it would limit the availability of capital in a way that harms the nation’s growth at the expense of Floridians and their standard of living.
“Florida state agencies are being very careful about how they implement SB 264 through the rulemaking process across several state agencies,” says Brewster Bevis, president of Associated Industries of Florida (AIF). “The AIF has drawn attention to the fact that there is a high risk that real estate investments in Florida will be affected, where passive Chinese investors have only 5% of the fund’s investment. These funds will only be controlled by US citizens because passive investors – even if they are foreign nationals – do not have the ability to direct the fund’s actions or even access information about the fund’s assets.” .
It appears, however, that Florida regulators are careful to avoid such a mistake and the unintended consequences that would follow. The Florida Department of Agriculture will hold a workshop this week on Nov. 21 to review proposed regulations that would clarify the de minimis test and provide that passive foreign investment is still allowed in the Sunshine State.
Whether it’s low taxes, expanded school choice or lighter regulatory burdens, Florida has served as a model for pro-growth policy that many other states are trying to emulate. However, it would be out of character for Florida to serve as a bad example by failing to provide the required regulatory clarity on new restrictions on foreign investment in the state.