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Despite State’s Hardline Stance, Tennessee Pension Holds Marijuana Stocks

Treasurer moves to sell after stock in IIP discovered in small-cap index investment.
By Elijah Owens

A local newspaper discovered that the Tennessee Consolidated Retirement System holds more than $720,000 invested in a company in the marijuana industry, despite the state government’s hard-pressed agenda against the drug.

The Chattanooga-based Times Free Press reported that the pension had a passive exposure to Innovative Industrial Properties Inc (IIP), which buys medical cannabis-growing developments and subsequently leases the properties to licensed distributors, through an investment in the Standard and Poor’s S&P Smallcap 600 index.

Last month, CIO showed how widespread index use means even if pension funds are environmental, social, and governance focused, they often unwittingly are invested in stocks that don’t match that profile.

When the paper discovered the pension’s ownership of 7,009 shares, despite the government’s hardline advocacy against even medical marijuana laws, they brought it to the attention of Tennessee Treasurer David Lillard Jr., who said he was surprised to hear of the investment.

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“I didn’t know we had this investment until the Chicago Sun-Times called up and we began digging around to find it,” Lillard said in an interview with the publication. He’s reported to have immediately called for the divestment of the pension’s holdings in IIP, a move that drew criticism from others due to the index’s positive performance.

IIP stock has more than doubled since the beginning of the year, from $46 on Jan. 1 to $103 on Aug. 1. The valuation peaked at $130 per share in early July.

The company’s year-over-year revenue increase as of March 2019 was 147%, and net income gained 285% over the same period, leaving the pension with the decision whether to prioritize its fiduciary responsibility or its alignment with the current administration’s political agenda.

Republican Rep. Jeremy Faison said, “I want our state employees and the people invested in the TCRS to be able to get an excellent return on their investment. If we’re getting in the game, why would we stop if there’s a way our state employees can get a better return on investment?”

“It’s contradictory and confusing to the public for the state to be invested in a marijuana company when we haven’t expounded a position that we currently support it,” State Senate Finance Chairman Bo Watson countered.

“I think it’s appropriate that the treasurer is selling the stock,” he added.

Lillard said the state needs to review its investment processes to avoid such a mix-up in the future. Media representatives from Lillard’s office did not respond to questions by press time.

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Home > News > Regulation > Moody’s: Kentucky Pension Reform Is a Negative for State’s Credit Rating
Regulation

Moody’s: Kentucky Pension Reform Is a Negative for State’s Credit Rating

Credit agency says the reform only pushes costs into the future. Gov. Bevin says he’s ‘not surprised.’
By Elijah Owens

Approximately two weeks ago, the Kentucky legislature approved a landmark pension reform that paved a course for certain quasi-governmental state agencies to escape the dire financial situation they’re expected to face as a consequence of being part of the underfunded Kentucky Retirement System.

Moody’s reviewed the legislation and decided it’s ultimately a negative for the state’s credit rating, which currently has an Aa3 stable rating, “because it pushes costs into the future and raises the likelihood that the state will take responsibility for a greater share of KERS’ unfunded liability.”

“Kentucky’s adjusted net pension liability relative to state revenues was the third-highest among the 50 US states, largely driven by years of very weak contributions,” Moody’s said in the report. The agency added that the “credit negative” assessment of the legislation doesn’t signal a rating outlook for the commonwealth’s credit rating.

Gov. Matt Bevin, who wrote the bill, said he wasn’t surprised by Moody’s announcement, and added that its statement only reinforces his previous assertions on how much work there’s left to do with the retirement system, one of the most underfunded in the nation.

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The legislation aimed to provide significant aid to state universities and quasi-governmental agencies, who were looking at mandated increases to their contribution rates into the system that could effectively jeopardize their operations. The bill froze their contribution rate for the remainder of the fiscal year, and provided avenues for them to buy their way out of the system through lump-sum or incremental payments and transfer their employees into 401 (k) plans.

“We estimate that non-state entities have a long-term savings opportunity if they elect to leave KERS under the new legislation, particularly if their employees prospectively cease participation in KERS. To the extent savings materialize for entities that leave the system, the state has signaled its intent to fund the long-term difference,” the Moody’s report said.

Moody’s said that the state, as of fiscal year 2018, was already responsible for more than 70% of the system’s liabilities.

Supporters of the bill are saying it’s generally a step in the right direction, with few other alternatives to explore. Critics argue it bars workers from receiving benefits, lets the agencies mistreat them, and freezes the accrued benefits of some members.

The critics’ proposed legislation, which was shot down in previous legislative sessions, proposed a long-term freeze of retirement benefits paid out by the quasi-governmental agencies, in addition to diverting millions in retiree health insurance payments to pension liabilities for five years.  

Related Stories:

Kentucky Finally Passes a Pension Reform

Kentucky Bill Would Allow Institutions to Leave Troubled Retirement System

 

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