Startup Investors Are Re-evaluating Discounts and Freebies to Lure Customers

Wall Street Journal writer Heather Somerville reported last week that, “The discounts and freebies many tech startups have used to lure customers—free lunch delivery, $3 beauty products and bargain taxi rides—have fallen out of favor with investors who are losing patience with the failure of these companies to turn a profit.

“The proliferation of subsidized products and services from venture-capital-backed startups over the past decade reflected a rush by investors to fund the next behemoth consumer-tech company. The thesis: Create a market leader with loyal customers hooked by attractive deals delivered at the touch of a smartphone app. Once the company got big enough, profits would flow and the subsidies could end.

Startup investors are re-evaluating that approach. Following a year of dismal performances from companies that were heavily subsidized by venture capital, investors and board members are pressuring companies to figure out a more profitable business model, tech deal makers and startup founders say.”

The Journal article indicated that, “Investors want startups to become less dependent on raised capital to cover the cost of customer discounts, such as e-commerce startup Brandless Inc. selling home and beauty products for a fraction of the cost of shipping, ride-hailing companies Uber Technologies Inc. and Lyft Inc.  discounting the cost of their rides, and meal-delivery service Postmates Inc. offering coupons for $100 off delivery fees.

“‘The subsidy bubble for raising new money is over,’ said Wesley Chan, managing director at Felicis Ventures. ‘What you are seeing is a realization that subsidies often lead to disaster for startups that rely on them.'”

Nonetheless, the Journal article added that, “Even with more investor scrutiny, subsidies aren’t going away. The venture-capital industry has a record amount of money to invest, and with interest rates staying historically low, many investors will be attracted to private tech companies even when they rely on private funding to pay their bills and dole out big discounts.”

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Ag Groups Intervene in Federal WOTUS Case

Last week, DTN writer Todd Neeley reported that, “A number of agriculture and other interest groups have filed a motion to intervene in a federal lawsuit challenging EPA’s repeal of the 2015 waters of the United States, or WOTUS, rule.

“Environmental and conservation groups filed a lawsuit in the U.S. District Court for the District of South Carolina on Oct. 23, 2019. That lawsuit is led by the South Carolina Coastal Conservation League, Natural Resources Defense Council, National Wildlife Federation and others.

The Oct. 23 lawsuit alleges the federal agencies violated the Administrative Procedure Act in promulgating the repeal rule and merely reverting back to the 1986 rule instead of re-introducing it for public comment.”

Mr. Neeley noted that, “The groups argue the 2015 WOTUS rule fixed a number of issues with the 1986 rule, which included protecting waters that are not navigable-in-fact, through the so-called ‘significant nexus‘ test put forward by Supreme Court Justice Anthony Kennedy. The rule also suggested the Clean Water Act protects smaller tributaries if they have some connection to larger navigable waters.

“On Oct. 22, 2019, the EPA and the U.S. Army Corps of Engineers finalized the repeal of the rule that agriculture and other industry groups and states had fought in court for years.

The repeal reverts regulations to the 1986 version of WOTUS while the EPA continues to rewrite the definition. The 2015 rule was opposed by critics as an example of gross federal overreach, yet the 1986 rule also had its share of concerns.”

The DTN article added that, “What is most problematic for agriculture with this lawsuit is if the court rules the agency should have promulgated the 1986 rule again instead of just reverting back to it, the 2015 rule could go back into effect until EPA completes the rewrite of the new rule.

“In recent court action, the American Farm Bureau Federation also led a number of plaintiffs in filing a motion to intervene in the case. In that motion, the ag groups said their interests remain threatened by the latest challenges to the repeal rule.”

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2019 The Fourth-Best Year on Record for M & A

Cara Lombardo and Dana Cimilluca reported this week at The Wall Street Journal Online that, “This year was a big one for mergers and acquisitions, but it could have been even better.

“The value of deals announced globally reached $3.8 trillion through Dec. 27, making 2019 the fourth-best year on record for M&A. The combined value of deals fell just 4% short of last year’s total, according to Dealogic, as the appetite for megamergers reached a new high.

“Companies struck 12 deals worth more than $25 billion, twice last year’s total, led by United Technologies Corp.’s $86 billion combination with defense contractor Raytheon Co., which is subject to regulatory approval.”

“The Deals and Deal Makers That Made the Year in M&A,” by Cara Lombardo and Dana Cimilluca. The Wall Street Journal Online (December 30, 2019).

The Journal article indicated that, “The U.S. was the standout region, with total deal value up 12% to $1.8 trillion.

“But those numbers belie weakness under the surface evidenced by a 1.6% decline in the amount of transactions as many companies remained on the sidelines, cowed by uncertainty surrounding the U.K.’s departure from the European Union and the U.S.-China trade confrontation.

“Nowhere was that hesitation on display more than in Europe, where the total deal value sank by 30% as countries including Germany faced economic slowdowns and uncertainty over Brexit gripped the U.K and the rest of the region.”

Looking ahead, the Journal article added that, “With President Trump appearing to make progress on a limited deal with China, and Brexit looking more certain following Boris Johnson’s decisive election victory in the U.K., some of that uncertainty could dissipate in the new year. Together with signs that the U.S. economy is on solid footing, that has put most bankers and lawyers who help arrange tie-ups in an optimistic mood as the year draws to a close.”

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Global Drop in IPOs

Richard Henderson reported this week at The Financial Times Online that, “A sharp drop in initial public offerings this year has underlined concerns about the state of public markets as fewer companies raise capital on the world’s stock markets.

“Despite surging global equity markets this year, the number of new listings fell by a fifth to 1,237, the lowest level in three years, according to Dealogic data. These companies raised a combined $188.8bn, a 10 per cent drop from 2018 and also a three-year low.

“The drop in IPOs comes at a critical juncture for public markets, which have shrunk over the past two decades, while private markets — such as private equity and venture capital — have expanded.”

The FT article explained that, “The challenges in listing in 2019 were highlighted by Uber, which has suffered a share price fall of about a third since listing in May. WeWork also sent a shudder through the listing market after aborting its IPO in September when investors soured on the company.

Listings across Europe, the Middle East and Africa suffered the sharpest fall this year. The 179 IPOs marked a 40 per cent drop from 2018 and the lowest total in seven years. The poor showing was mirrored in Asia, where the number of IPOs hit a five-year low, and the Americas, where listings sagged 15 per cent.

“The UK’s protracted exit from the EU put pressure on deals in Europe, with the number of listings on the London Stock Exchange, the region’s leading listing venue, dropping 62 per cent.”

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EPA Takes Steps to Provide Needed Clarity and Certainty for U.S. Agriculture

A news release last week from the U.S. Environmental Protection Agency (EPA) stated that, “Today [Dec. 19th], the [EPA] is announcing two important actions that will help the agricultural sector protect crops from pests and weeds. Under the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA), EPA is approving the use of 10 pesticide products on hemp in time for the 2020 growing season. Nine of these products are biopesticides and one is a conventional pesticide. EPA is also issuing a proposed interim decision on atrazine — a widely used herbicide. Both actions provide regulatory certainty and clarity on how these tools can be used safely while also helping to ensure a strong and vibrant agricultural market.

The EPA update indicated that, “The first action EPA is announcing is the approval of ten pesticide applications for use on hemp, just in time to be used during the 2020 growing season. EPA wanted to ensure the agency acted on these applications quickly to give growers certainty for next spraying season in 2020 and to make timely purchasing decisions for next year. These approvals were made possible by the 2018 Farm Bill, which removed hemp-derived products from Schedule I status under the Controlled Substances Act.

“While EPA oversees pesticide registrations for hemp under FIFRA, other federal agencies are working to streamline their separate regulatory implementation processes for the newly legalized crop. The 2018 Farm Bill directed the U.S. Department of Agriculture (USDA) to develop a regulatory oversight program for hemp. USDA has since proposed a rule for state-level hemp growing/management plans. In addition, the Food and Drug Administration also plays a role in regulating hemp products when they fall under their regulatory authority. EPA is committed to working with our federal partners and helping hemp growers obtain the tools needed to support and increase commercial production. The step the agency is taking today recognizes that innovation in pesticide use is critical to the success of our strong and vibrant agricultural sector.”

Last week’s update added that, “The second action EPA is taking today is to propose new, stronger protections to reduce exposure to atrazine — the next step in the registration review process required under FIFRA. Atrazine is a widely used herbicide that controls a variety of grasses and broadleaf weeds. It is well-known and trusted by growers as one of the most effective herbicides. Atrazine is used on about 75 million acres annually and is most often applied to corn, sorghum, and sugarcane. (Note: Atrazine is not one of the ten pesticides approved for hemp.)

As part of this action, the agency is proposing a reduction to the maximum application rate for atrazine used on residential turf, and other updates to the label requirements, including mandatory spray drift control measures. EPA’s proposed decision is based on the 2016 draft ecological risk assessment and the 2018 human health draft risk assessment for atrazine. EPA is also proposing updates to the requirements for propazine and simazine, which are chemically related to atrazine. EPA will be taking comment on the atrazine, propazine and simazine Proposed Interim Decisions for 60 days after publication in the Federal Register. Comments can be made to the following dockets EPA-HQ-OPP-2013-0266 (atrazine), EPA-HQ-OPP-2013-0250 (propazine), and EPA-HQ-OPP-2013-0251 (simazine) once the Federal Register notice publishes online.”

The EPA release also stated that, “In addition to today’s regulatory actions, EPA is continuing to build and enhance its relationship with the agricultural sector through the agency’s Smart Sectors program. Staff and senior leaders, including Region 5 Administrator Cathy Stepp and Region 7 Administrator Jim Gulliford, are meeting today in Lenexa, Kansas with representatives from the renewable fuels industry. The meeting is providing a platform to collaborate with the renewable fuels industry and develop sensible approaches that better protect the environment and public health.”

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U.S. Home Builders Benefited From Low Interest Rates This Year; Housing Starts Climbed and New-Home Sales Surged

Earlier this week, Wall Street Journal writer Will Parker reported that, “U.S. home builders benefited from low interest rates this year as housing starts climbed to levels not seen in a decade and new-home sales surged after a disappointing 2018.

“Builder confidence, as measured by the National Association of Home Builders, is now the highest since 1999. And publicly traded home-builder stocks beat the S&P 500 average this year, rising 40% as of Dec. 23, compared with the broad index’s 29% gain over the same period.

“Home builders cranked up volume partly by focusing on homes more buyers can afford. Large builders including Meritage Homes Corp. and MDC Holdings Inc. made strategic shifts to produce a higher number of less-expensive homes, targeted at a generation of millennials with lower purchasing power than average buyers in the past.”

The Journal article added that, “Strong buyer demand for more-affordable homes stoked mergers and acquisitions. In November, Taylor Morrison Home Corp. said it would purchase a West Coast competitor, William Lyon Homes, a company that does more than half of its business in the entry-level market. Scheduled to close in 2020 and valued at $2.4 billion, the deal was among the largest announced in the industry this year.

“Some home builders and analysts question whether growth will continue at the current pace next year. Fitch, for example, predicts new-home sales will only grow 1.5%, compared with 9% in 2019.”

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EPA, Justice Department File Brief Supporting Bayer in Weedkiller Court Fight

Wall Street Journal writers Jacob Bunge and Timothy Puko reported late last week that, “The Trump administration is backing Bayer AG in the German chemical maker’s high-stakes court fight over the world’s most widely used weedkiller.

The Environmental Protection Agency, working with the Justice Department, filed court papers Friday supporting Bayer’s argument that glyphosate, the active ingredient in the company’s Roundup herbicide, poses no cancer risk. The filing backs Bayer’s appeal in federal court of a $25 million verdict in the case of a California man who blamed Roundup for causing his non-Hodgkin lymphoma, one of tens of thousands of similar cases.

Lawyers for both government agencies argued the verdict should be overturned because it would have been illegal for Bayer to print cancer-risk warnings on Roundup labels. They said Congress granted the EPA the sole authority over safety labels on chemical products, and the agency wouldn’t have approved a cancer warning for Roundup.”

The Journal writers noted that, “While it isn’t the first time a regulator has weighed in on such a case, legal scholars said the filing would likely catch the appeals court’s attention. The federal government will often weigh in on cases when the interpretation of a federal statute is involved, they said.

Several Roundup trials have been postponed in recent months as Bayer and plaintiffs’ attorneys try to negotiate a settlement as part of a court-ordered mediation overseen by Ken Feinberg, who helped divvy up compensation to victims of the 9/11 terrorist attacks and the 2010 Deepwater Horizon oil spill.”

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USDA Announces Pilot Insurance Coverage for Hemp Growers

A news release today from USDA’s Risk Management Agency (RMA) stated that, “[RMA] today announced a new crop insurance option for hemp growers in select counties of 21 states in 2020.  The pilot insurance program will provide Actual Production History (APH) coverage under 508(h) Multi-Peril Crop Insurance (MPCI) for eligible producers in certain counties in Alabama, California, Colorado, Illinois, Indiana, Kansas, Kentucky, Maine, Michigan, Minnesota, Montana, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Tennessee, Virginia, and Wisconsin.

“The MPCI coverage is for hemp grown for fiber, grain or CBD oil for the 2020 crop year. It is in addition to the Whole-Farm Revenue Protection coverage available to hemp growers announced earlier this year.

“‘We are excited to offer coverage to certain hemp producers in this pilot program,’ said RMA Administrator Martin Barbre. ‘Since this is a pilot program, we look forward to feedback from producers on the program in the coming crop year.'”

Today’s update added that, “The 2018 Farm Bill amended the Controlled Substances Act to address how industrial hemp is to be defined and regulated at the federal level, and those modifications cleared the way for the Federal Crop Insurance Corporation to offer policies for it. The Farm Bill defines hemp as containing 0.3 percent or less tetrahydrocannabinol (THC) on a dry-weight basis.

To be eligible for the MPCI pilot program, among other requirements, a hemp producer must comply with applicable state, tribal or federal regulations for hemp production, have at least one year of history producing the crop, and have a contract for the sale of the insured hemp. Producers also must be a part of a Section 7606 state or university research pilot, as authorized by the 2014 Farm Bill, or be licensed under a state, tribal or federal program approved under the USDA Agricultural Marketing Service (AMS) interim final rule issued in October 2019. The MPCI provisions state that hemp having THC above the federal statutory compliance level will not constitute an insurable cause of loss. Additionally, hemp will not qualify for replant payments or prevented plant payments under MPCI.

In addition, beginning with the 2021 crop year, hemp will be insurable under the Nursery crop insurance program and the Nursery Value Select pilot crop insurance program. Under both programs, hemp will be insurable if grown in containers and in accordance with federal regulations, any applicable state or tribal laws, and terms of the crop insurance policy.”

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U.S. Hops Output Rose 5% This Year, Amid Craft Beer Craze

Bloomberg writer Agnieszka de Sousa reported today that, “IPA lovers can raise a toast to news that there are more U.S. hops to quench the thirst of the booming craft-beer scene.

“Growers in the world’s top producer just reaped another record crop, with output rising 5% to 112 million pounds (51,000 tons) this year, according to the annual National Hop Report. In just two decades, harvests in the three producing states of Washington, Idaho and Oregon almost doubled thanks to the growing popularity of the beverage.”

“Record U.S. Hop Harvest Signals a Coming World IPA Bounty,” by Agnieszka de Sousa. Bloomberg News (December 19, 2019).

The Bloomberg article added that, “The number of craft breweries, microbreweries and brewpubs has more than quadrupled in a decade to account for a quarter of total U.S. beer sales, according to the Brewers Association. The lobby group estimates that about 25 million barrels of craft beer are produced every year in the U.S.”

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States Suffering from Dicamba Fatigue

Earlier this month, DTN writer Emily Unglesbee reported that, “Three consecutive years of off-target dicamba injury is taking its toll on the agricultural industry.

“Leo Reed even has a name for it: dicamba fatigue.

“‘States recognize that both we and the [EPA], we’re all suffering from dicamba fatigue — staffing shortages and issues and processing a huge number of complaint cases again this year,’ said Reed, an Indiana state pesticide regulator serving as president-elect of the Association of American Pesticide Control Officials (AAPCO).”

The DTN article noted that, “‘The term dicamba fatigue applies to growers as well,’ Reed continued. ‘We’re hearing from growers who say, ‘I’ve been hit three years in a row and I’m not going to report anymore. It’s not doing any good.”

“Reed’s comments came during a two-day annual meeting of state pesticide regulators, State FIFRA Issues Research and Evaluation Group (SFIREG), in Arlington, Virginia. There, during a special session on the herbicide, state regulators reported continued problems with off-target dicamba injury, which overwhelmed some state agencies for a third year in a row. And this year, for the first time, several state regulators also reported growing concerns for the health of non-soybean vegetation, especially trees, as well as human health and safety.”

Ms. Unglesbee added that, “Illinois led the country in dicamba injury, with regulators actively investigating 724 cases of alleged dicamba injury, a record for the state, noted Brian Verhougstraete, a Michigan pesticide regulator representing Region 5 states of Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin.

“‘Illinois regulators mentioned that you would be hard-pressed to find a non-dicamba-tolerant soybean field in some counties that wasn’t damaged, because there were whole counties that appeared to be damaged,’ Verhougstraete said.”

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