Desert Hot Springs, CA Experiences Remarkable Turnaround By Embracing The Cannabis Industry

Once upon a time, Desert Hot Springs, CA had been a community down on its luck. Once on a path to insolvency, the town’s decision to embrace cannabis—along with the strategic guidance and capital of Pelorus Equity Group—has completely transformed the community into a now-thriving locale. TDR recently joined Rob Sechrist, the Co-Founding President of Pelorus Equity Group, on location to view this California turnaround success story first-hand.

Desert Hot Springs Narrowly Escapes The Clutches Of Insolvency

As recently as 2013, Desert Hot Springs was on the brink of an economic disaster which threatened the very viability of the community. In November of that year, City Council voted unanimously to approve the emergency declaration, prompted by revenues falling well short of covering the city’s expenses. In the words of interim city manager Robert Adams, the city suffered from a “serious structural imbalance” brought about by the economic downturn and decreased development, bringing the situation to a head.

The budget shortfall was more than just cosmetic or an inconvenience to community residents. It forced a severe cutback of essential policing and ambulance services, as well as pensions to longtime residents who had served the community.

As a city still struggling to avoid defaulting on debt payments stemming from $12 million in aggregate municipal bond issuance following 2001 bankruptcy proceedings, a second bankruptcy would have had wide-ranging negative impact upon the community that would make recovery difficult.

While Desert Hot Springs narrowly avoided a second bankruptcy, the community still had to figure out how exactly it would plug an immediate budget shortfall. Cutting back further on essential services were one way to narrow the difference, but this was only a stop-gap measure. In order to survive long term, the town had to foster an industry that could expand the tax base and generate sustainable revenues to backstop its long-term financial commitments.

With no obvious solution in sight, Desert Hot Springs turned to the cannabis industry to attract business investment. In the weeks following the emergency declaration, city leaders proposed regulation changes at medical cannabis dispensaries as part of an effort to generate tax revenue.

To do so, city council would need to rescind a ban on dispensaries and get voters to approve a ballot measure to tax cannabis sales. The subsequent effort paid off when on November 4, 2014, City of Desert Hot Springs Marijuana Tax, Measure HH ballot question appeared on the election ballot for voters, which was subsequently approved by more than a 2:1 margin.

That same year, Desert Hot Springs also became a state industry pioneer by becoming the first city in California to legalize large-scale medical cannabis cultivation.

By embracing the cannabis industry in advance of full legalization which came to pass in 2016, Desert Hot Springs had gone, in the words on MJBizDaily, “from a sleepy, nearly bankrupt town to a marijuana magnet where scores of entrepreneurs are launching operations or exploring how to get a foothold in the market.”

California Legalizes Adult-Use Cannabis Via Proposition 64

On November 8, 2016, Proposition 64, otherwise known as the Adult Use of Marijuana Act, was passed by a 57-43% margin on voters. It authorized the use, sale, and cultivation of recreational cannabis in California for adults 21 and over. The initiative was certified for the ballot on June 28, 2016 after advocates supporters handed in more than 600,000 raw signatures of the 365,000 certified signatures that were required.

Previously, California became the first U.S. state to allow medicinal cannabis use when voters passed the Compassionate Use Act in 1996.

Pelorus Equity Group Funds Desert Hot Springs Cannabis Buildout

In 2016, Newport Beach-based Pelorus Equity Group entered the specialty finance cannabis real estate lending space and immediately found willing opportunities in Desert Hot Springs. As the first municipality to embrace adult-use sales—and with commercial cannabis cultivation permitting already in place—it was a natural fit. Today, Pelorus is the largest cannabis industry lender in the area and key contributor to the revitalization on a once-downtrodden community:

Desert Hot Springs was the first city to be—go cannabis friendly for recreational in 2016. And we were—this is where we started our lending. We built the now-Harborside dispensary was our first transaction, which we visited today. And, you know, that city was going bankrupt, and they figured they had nothing to lose, so they might as well try to save the city. And today, that city is being re-gentrified with a new economic boom that has been coming in since 2016.

Rob Sechrist, the Co-Founding President of Pelorus Equity Group

How much of a turnaround has the cannabis industry brought to the region? In the span of 6 short years, Desert Hot Springs went from the precipice of defaulting on municipal bond payments to being awarded an A+ credit rating by Standard & Poor’s. A modern American success story, aided by experienced commercial lenders who understand the industry and remain vested in their clients success.

To view the full-length documentary, click on the embedded link above.

To view our previous Pelorus Equity Group Podcast, click here.


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