Morning Report

What you need to know one minute before daylight

Paying $15 an Hour, Hiring Pot Smokers, and Starting Up in Prison

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REGULATION

On Thursday, the House voted to raise the federal minimum wage to $15 an hour by 2025: “The bill would more than double the federal minimum wage, which is $7.25 an hour—about $15,000 a year for someone working 40 hours a week, or about $10,000 less than the federal poverty level for a family of four. It has not been raised since 2009, the longest time the country has gone without a minimum-wage increase since it was established in 1938. The measure, which passed largely along party lines, 231-199, after Republicans branded it a jobs-killer, faces a blockade in the Senate, where Senator Mitch McConnell of Kentucky, the majority leader, said he will not take it up.”

The EPA announced it would not ban chlorpyrifos, a pesticide its own experts have linked to health problems in children: “The decision by Andrew R. Wheeler, the EPA administrator, represents a victory for the chemical industry and for farmers who have lobbied to continue using the substance, chlorpyrifos, arguing it is necessary to protect crops. It was the administration’s second major move this year to roll back or eliminate chemical safety rules. In April, the agency disregarded the advice of its own experts when officials issued a rule that restricted but did not ban asbestos, a known carcinogen. Agency scientists and lawyers had urged the EPA to ban asbestos outright, as do most other industrialized nations.”

HUMAN RESOURCES

If marijuana is legal, do companies have to employ its users? “Smoking pot cost Kimberly Cue her job. Ms. Cue, a 44-year-old chemical engineer from Silicon Valley, received an offer this year from a medical device manufacturer only to have it rescinded when the company found out that she smoked prescription marijuana to treat post-traumatic stress disorder. ‘My email was set up with the company,’ she said. ‘My business cards were printed.’ But after a pre-employment drug test came back positive for marijuana, a human resources representative told her the job was no longer hers. …

“The relatively rapid acceptance of marijuana use in the United States has forced lawmakers and employers to grapple with how to adapt. Last month, Nevada passed a bill prohibiting the denial of employment based on a positive test for marijuana. In Maine, employers may not discriminate against people who have used cannabis, but state law does not specifically regulate drug testing. And under a bill overwhelmingly approved in April by the New York City Council and awaiting Mayor Bill de Blasio’s signature, employers would no longer be able to force job applicants to take drug tests for marijuana use.

ConCreates wants to challenge the way society views people, including the founder, who have a criminal history: “Vincent Bragg served five years, one month, and 22 days in federal prison on drug charges. In that time, he studied corporate and real estate law and read more than 400 books. He also started a creative ad agency. Today, though, marks the official launch of ConCreates, a creative shop staffed entirely by men and women who have been, or are currently, incarcerated, with an overall goal to challenge the stigma society so often applies to people with criminal histories. The agency operates on a crowdsourcing model, tapping into a network of 436 men and women currently behind bars, and 319 former prisoners on the outside, for skills depending on the work needed. ‘We built a creative network based on certain individual skill sets,’ says Bragg. ‘Where most might see a bank robber, we see a strategist.’”

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STARTUPS

Like Stitch Fix, Wearwell is a clothing-subscription startup, but it offers only ethically sourced apparel to women:Wearwell pivoted in December 2017 to the company’s current model: a monthly membership where customers are sent suggested selections by email links and make purchase choices. Those selections are then shipped from a converted space in Center City [Philadelphia]. The return rate is about 20 percent, versus 50 percent under the original model, Houston said. The company of 10 employees, most of them independent contractor stylists, has about 300 subscribers paying a monthly membership fee of $8.50, which gets applied to a purchase. 

“Revenues are about $10,000 a month, with subscriptions—primarily Millennials—growing 10 percent to 15 percent, Houston said, citing a US target market of 8.6 million millennial women making at least $75,000 a year. Wearwell has 30 brand partners, one-quarter to one-third of whom are in the United States. Houston and Kenney say each has been vetted on such things as whether the cotton they use is organic and whether they are paying workers fair wages and providing them a safe environment.”

Payments startup Finix helps companies get more out of each transaction by processing payments in-house: “In the same way Twilio’s white-label software lets Uber users seamlessly call their driver through the app, … Finix lets companies own and control their payment processing. Traditional processors take a small cut of each transaction on top of the rich ‘interchange’ revenue that Visa and Mastercard collect when they charge merchants 1.5 percent to 2.5 percent for each card swipe.

“Finix targets customers that process at least $50 million in annual transactions, a point when it might start to make economic sense to move away from Stripe, Square or PayPal. The fintech giants charge merchants from 2.75 percent to 2.9 percent of each transaction, plus other fees. Finix makes money through a monthly licensing fee and other surcharges, like an onboarding fee. Lightspeed, a Canadian company that sells point-of-sale software for accepting credit cards, … previously earned 0.25 percent per transaction when it used multiple payment processors. After bringing the processing in-house with Finix’s white-label service, ‘we are targeting to net approximately 0.65 percent,’ the company said in a recent regulatory filing.”

Costa Rican startup SailCargo has a new, old idea for carbon-neutral shipping—a wooden, three-masted sailing ship: “Once completed in late 2021, the Ceiba … is expected to carry cargo throughout the Americas. The schooner will use canvas sails and an electric engine instead of burning bunker fuel, the dirty staple of the modern shipping industry. … Their lumber comes from sustainably harvested and naturally fallen tamarind and other hardwoods. The team is planting thousands more trees to rebuild forests, produce future ship supplies, and offset emissions from the project. The startup also hopes to grow a profit someday by hauling spices, cotton, cacao, and other cargo on a fleet of wooden ships. ‘We want to show that, from its inception, something can be completely regenerative and carbon neutral,’ said Danielle Doggett, SailCargo’s co-founder and executive director.”

The demand for a return to sailing ships is already here: Lush, “known for its soap and shampoo, is one of a growing number of businesses exploring the use of sailing—from traditional ships to redesigned, tech-heavy vessels with sails—to help cut emissions on some trips.”

E-COMMERCE

Amazon’s Accelerator program offers merchants marketing support with a catch: “Amazon gains the right to purchase a merchant’s brand at any time for a fixed price, often $10,000. The program—which allows brand rights to be bought for a fixed price on 60 days’ notice, according to a contract seen by the Journal—is part of a push by Amazon to obtain a stable of exclusive brands for the platform. It is the first selling program that allows Amazon to obtain direct control over independent brands that sell on its website, according to merchants familiar with Amazon programs.”

TECHNOLOGY

Google Glass might have an afterlife as a teaching tool for children on the autism (ASD) spectrum, according to a Stanford University study: “Catalin Voss started building software for Google Glass in 2013, not long after Google unveiled the computerized eyewear amid much hullabaloo from the national media. An 18-year-old Stanford freshman at the time, Mr. Voss began building an application that could automatically recognize images. Then he thought of his cousin, who had autism. Growing up, Mr. Voss’s cousin practiced recognizing facial expressions while looking into a bathroom mirror. Google Glass, Mr. Voss thought, might improve on this common exercise. Drawing on the latest advances in computer vision, his software could automatically read facial expressions and keep close track of when someone recognized an emotion and when they did not. … Children who used the software in their homes showed a significant gain on the Vineland Adaptive Behavior Scales, a standard tool for tracking the behavior of those on the autism spectrum, Mr. Voss said.”

OXFORD STRATEGIC ADVISORY DEAL OF THE DAY 

VMware, a provider of cloud infrastructure and digital workspace technology, has acquired Bitfusion, a developer of an AI infrastructure management software designed to make at-scale heterogeneous computing accessible to any organization. “VMware will use Bitfusion’s technology, which is vendor- and hardware-agnostic, to bring similar capabilities to its customers. Specifically, it plans to integrate Bitfusion into its vSphere platform.”

PRIVATE EQUITY

EN Engineering, a provider of engineering services in the transmission and distribution gas and liquid segments, reached a definitive agreement to be acquired by Kohlberg and Company through an LBO. 

CANNABUSINESS

West Hollywood just approved America’s first cannabis cafe: “Lowell Farms promises cannabis cuisine and a smoking area, too. However, it’s an open-air restaurant at 1201 N. La Brea Ave, directly across the street from a synagogue, which has an outdoor area used by the congregation. The rabbi is worried about cannabis clouds drifting into their congregation. To gain resounding unanimous approval from the city of West Hollywood, Lowell Farms promised an air filtration system like the one used in casinos. While the approval is historic and many believe the move by the progressive city is only the start, the cannabis consumption area licenses are only good for a year.”

OBITUARY

Michael Seidenberg, eccentric owner of Brazenhead Books popular among literary heavy-hitters, has died. After he lost his store lease, he moved his inventory into his rent-controlled apartment to save his business: “Mr. Seidenberg … turned the book-stuffed apartment into a secret bookstore, open at select times or by appointment to friends and admirers. Sometimes a visitor might actually buy a book, but the place was more like a salon, with literary figures and book lovers mingling and sharing a drink at a bar stocked mostly with liquor contributed by patrons. … Soon the covert bookstore/salon was not so covert; ‘every year, it got less and less secret,’ Mr. Seidenberg acknowledged. It may have become too well known. In 2015 the landlord, saying the site was more store than apartment, began eviction proceedings.”

And that’s what’s ahead.

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