Posted by Cindy Uken | Oct 22, 2018, | Business

Editor’s Note: With the 14th Annual Greater Palm Springs Economic Summit set for Nov. 8 at the Palm Springs Convention Center, Uken Report posed 10 questions to Joe Wallace, CEO of the Coachella Valley Economic Partnership (CVEP).

The questions and Wallace’s responses in their entirety follow:

Uken Report (UR): What can attendees expect different at 2018 Greater Palm Springs Economic Summit?

Wallace: This year we are bringing in three speakers to address some basic opportunities that greater Palm Springs can learn from that have been proven in other locations. We have also adopted the fastpitch format that CVEP teaches our entrepreneurs when they are seeking outside investment.

Last year we opened the Summit with a vision of what 2050 can be from a 10,000-foot perspective.  This year we will extend that vision with a new video featuring two young adults of the future who have come back to tell us what our efforts now have done to the world that they live in.  We have featured the Education and Innovation Hubs at the Cook Street exit in Palm Desert, a clean and well developed Salton Sea, a fully automated logistics center at the Thermal Airport, plus a look back at where it all started, the Palm Springs iHub.

Our speakers with the exception of Dr. Manfred W. Keil will all be covering their topics in roughly 20-minute time frames and I will introduce some calls for action interleaved with recorded messages from our university partners.

The short answer is more directly applicable content with a focused vision and a call for unity in moving forward in a prosperous and responsible way so all of our people have the opportunity to participate as the Coachella Valley Elevates over the next 32 years.

UR: What do you want attendees to take away from this Summit?

Wallace: Greater Palm Springs is an outstanding place to enjoy life and there are some known things we can do that will make us just as outstanding as a place for diverse high paying businesses to thrive. It is only through all of our actions, commitments, and perseverance that this will happen but we are on the verge of transitioning to a higher economic level.

UR: The focus is Elevate! Exactly what does that mean?

Wallace: Elevate means improving the skills of the workforce, expanding the educational opportunities that are available to include training for high wage job sectors, upgrading our critical infrastructure including digital infrastructure, encouraging entrepreneurs with aspirations to enter high value technology sectors, and promoting our location to coastal businesses that enjoy the California vibe that we enjoy that are looking for an escape from exorbitant housing prices and mind-numbing commutes.

UR: Without giving us the whole report, what are some of the highlights of the economic report? Whet our appetite?

Wallace: I have not seen Dr. Keil’s report yet but I am certain it will recognize the national and state economies as very good.

Hopefully, it will be of more interest than what is happening today will be addressing issues that need to be addressed to assure a prosperous future.  These things include learning the lessons about how Fargo, N.D., became a magnet for millennials by leveraging state-of-the-art bandwidth and a research-based university to toss off the old ways of bison, winter wheat, and cold boring winters.

We will also be hearing from Ankur Gopal who has pioneered his unique program of retraining laid off coal miners in Appalachia to become code developers for tech companies without leaving the holler (that is Appalachian for valley). This will become vital as automation is developed that will eliminate many of our regions existing jobs.

UR: Can you give us a peek into economic forecast?

Wallace: I was fortunate enough to see Dr. Keil’s presentation on this subject in Claremont earlier this year.  At that time he characterized the national, state, and local economies as “on fire.” He meant that in a good way and not in a way that required a tanker plane full of seawater to extinguish.  I do not expect his assessment of the current state of the economies to change.

As for the future, Dr. Keil opined at that time that the punch bowl is not going to be taken away in the near future. I have not seen his report and the economy is always evolving so I will be as interested as you are to see what he is seeing in his crystal ball on Nov. 8.  He did give one tease in an email and I quote, “the R word? Don’t Panic.”

As we have always been told, “all good things must come to an end” and someday there will be another recession.  Will, that comes in 2020, 2025, 2030 or later? No one really knows.  Rome was not built in a day and the housing crises that precipitated the last recession took roughly 30 years to come to a boiling point.  We shall all see what the next negative disruption is when it happens. Until then, enjoy what we have now but plan for the future.

UR: How would you personally characterize the overall economic health of the Inland Empire?

Wallace: The economies of the Inland Empire and the Coachella Valley are in the best shape they have been in since before the housing crisis.  The biggest problems have gone from not having enough jobs to having quality employees to fill the openings we have. All of our hospitals still have nursing shortages and nearly every skill based job cluster is struggling to find workers with the skills they seek.

The five to the ten-year horizon is not as bright.  A recent study by McKinsey and Company that identified the industry sectors most likely to be negatively impacted by automation puts the Inland Empire at the top of all metro areas nationwide when it comes to the probability of job losses due to automation.  The top five job classifications in the bulls-eye for being negatively impacted by automation are hospitality and food service, manufacturing, retail, agriculture, and logistics. Four of those sectors are the largest employers in both the Inland Empire and the Coachella Valley.  Now that we know this, it is our opportunity as leaders in this valley to do something about it before we are facing as many as 100,000 workers with no jobs and limited skills to offer another employer.

The good news is this will not happen overnight.  The bad news is that once it starts, it will move very fast.  Five years ago there were no fast food kiosks.  Today there is hardly any fast food outlet that has not adopted kiosks.  Automation of the five sectors above will not be any different.

UR: What are the economic trouble spots?

Wallace: The economic trouble spots in the Coachella Valley have changed over the past several years but the fundamental challenge remains the same.  The challenge is that our economy is overly dependent on hospitality, retail, and agriculture all of which are low paying and seasonal.  This dependence on low paying business models has created sort of a bi-modal economy with large numbers of workers earning low to moderate incomes with a high probability of being temporary layoffs in the summer when our population is lower and our temperatures are higher.  This has gotten better in the last few years but it is still an issue for our workforce.

Our tow highest pay sectors are local government and education.  Both of these depend on taxes to make the payrolls. This is a departure from economies that have a more developed broad base of employers that pay middle-class wages.

UR: What is the hottest economic area for growth potential?

Wallace: Cybersecurity, IOT (internet of things), 5G, and Blockchain are my answers to this question because these are the hottest areas nationwide and they all pay very high wages, enjoy current demand and are expected to grow even more in the near future.  Cybersecurity for instance currently has about 360,000 openings nationwide with starting salaries near $100,000 per year.  Mid-career professionals in this field can earn nearly $400,000.  It has been projected that by 2021 there will be 3.5 million additional openings by Cyberventures that makes equity investments in cybersecurity.

IOT jobs are in a similar situation with wages and 4.5 million new openings are projected.  These two sectors alone are expected to create 7 million jobs by 2021.  That is the total number of advertised job openings in the entire United States right now and six times the number at the beginning of the last recession.

For every employee today working in Blockchain technology there are 14 openings.

None of these careers require a bachelor’s degree at this point in time. Someone who is skilled in programming or even in logic based businesses can take online or in-class training in roughly 6 months to elevate their skills to enter these professions.

CVEP has an employee who has a sister studying cybersecurity at CSUSB. As an intern in New York City, she has already earned $37 per hour and should she decide after graduation to accept full-time employment the starting pay is $60 per hour. That is $124,800 per year which is more than double the average wage for the highest paying employment sector in the Coachella Valley which is incidentally working for local government.

Finding ways to offer this kind of training is the kind of activity that will truly transform the wage distribution of the Coachella Valley from today’s bi-modal nature to an economy that has real upper middle-class opportunities for those who choose to take advantage of the opportunities.

UR: What role does the cannabis industry play in the Inland Empire’s economic outlook?

Wallace: Cannabis is certainly on the minds of most people and is highly visible with all of the growing facilities and dispensaries being permitted and built.  Cannabis is really two very different business models with growers being a cross between manufacturing and agriculture and dispensaries being traditional retail.

Today many construction people are employed in building the grow facilities and with the tens of millions of square footage permitted this will continue for at least 3 years. Once these grow facilities are completed the employment prospects will not be as bright as it was once thought to be.  Automation is already available that separates the buds from the stalks and trims the buds in preparation for packaging.  The packaging also has already been automated as have substantially all of the security features, lighting control, and distribution of nutrients.  In the near future, a growing facility will not need very many people on the payroll.  The opportunity for good jobs in growing cannabis will be from developing and servicing the lighting, air handling equipment, robotics, and distribution technology for nutrients and water. We have one company at the Palm Springs iHub that is developing a unique LED lighting solution that is optimized to emit light at wavelengths known to promote healthy growth in cannabis plants.

Dispensaries are essentially specialized retail outlets with exclusive regulations and tax protocols.  Before cannabis was legalized for recreational use there were less than 10 legal dispensaries in the Coachella Valley.  Today “Weedmaps” has nearly 200 dispensaries listed serving the Coachella Valley.  During the first six months of legalized recreational use, the demand has been estimated to have grown by only 25 percent as compared to before legalization.  This does not bode well for all of the aspiring ganjapreneurs. The Coachella Valley does not have a market that is sufficient to keep 200 dispensaries open.  There will be a big shake out and when that is over we will probably have fewer than 50 thriving dispensaries.  The law of supply and demand will balance out in the long run.  Retail in the cannabis industry will not pay high salaries because the skill of operating a store is not much different than it is in other specialized retail.

Privately, dispensary owners are open about the struggles to maintain a profitable business.  The regulations imposed by the California Cannabis Regulatory Commission have been reported to cost $530 per pound of product.  When the cost of leasing a space, paying the utilities and staff, plus collecting the relatively high sales taxes are considered the dispensaries need to be able to sell their products for roughly $300 per ounce just to earn a moderate profit.  The website “priceofweed.com” currently quotes the prices paid for high-quality product at $250 per ounce which really doesn’t provide sufficient margin to be both profitable and compliant.  The toughest competition, of course, is from street cannabis that has been reported to sell for less than $100 per ounce throughout Southern California.  The reality is that if dispensaries must be able to sell their products for $300 per ounce and an illegal market exists at $100 per ounce, illegal operators will exist perpetually. With numbers like this, if the products were provided free to the dispensaries but the regulations remain intact it would still be impossible to compete with street dealers on price.

Perhaps the biggest challenges will come when (not if) the federal government decriminalizes cannabis which will open the market to out of state competition. Opening the cannabis markets nationwide will expose California growers to competition from locations that have electric rates that are less than half of what ours are and agricultural land that sells for less than $5,000 per acres.  This will cause a grower shake-out.

Finally, recreational cannabis is subject to California state excise taxes and medicinal is not.  During the first half of 2018, the total excise taxes collected were about $85 million. That is only a little over $2 per Californian.  At this rate of collecting excise taxes, in about two years the State of California can afford to buy us all a Happy Meal. There is no data available on the cost to operate the CCRC but it is entirely possible that the state is spending more to collect the excise taxes that they actually collect. In that case, forget the opportunity for a free Happy Meal.

The cannabis business is in transition and while there will be much construction and many attempts to start retail outlets it is highly unlikely that the fountainhead of prosperity that has been forecasted will ever materialize as once believed.

UR: How does the Coachella Valley expand its economy?

Wallace: The Coachella Valley can expand its economy in the same way that other locations that have been successful have.  Concentrating on entrepreneurship as CVEP has done with its iHub program is a large driver of future expansion and growth of good jobs.  It is not widely known that the Kaufmann Foundation published a study on job growth and concluded that 100% of net job growth in the United States since 1980 have come from companies that are less than 5 years old.

Our second area of concentration has to be in continually updating our business critical infrastructure so that leading edge businesses can actually do their jobs here.  These needs are the bandwidth of over 1Gbps in sufficient locations to meet the needs of new businesses, continuous cellular service across the valley, embracing 5G as it begins to roll out, and expanding our educational offerings for students and adults alike into the STEM (science, technology, engineering, and math) career paths.

EDITORS FOOTNOTE: Joe Wallace was the CEO of GAGE for several years and was extremely well thought of by members of the area business community.