Aim: Here’s to 20 more years

The Alternative Investment Market (Aim) – a sub-market of the London Stock Exchange that allows smaller companies to participate with greater regulatory flexibility than applies to the main market – is today celebrating its 20th anniversary.

Aim has seen over 3,600 companies join since its 1995 launch and is now home to around 1,100 small and midsized companies. A less tightly regulated market than the main exchange, Aim provides a lower-cost alternative for small and mid-sized companies seeking investment.

But crucially, once afloat firms can raise further finance from their shareholders without going through the procedures enforced on those listed on the London Stock Exchange. And in a bid to ensure the flexible ambitions of SMEs are served even further, acquisitive companies and those looking to be acquired encounter far fewer controls than those on the main market.

Many successful companies have listed on Aim, including:Arbuthnot Banking Group
Arbuthnot Banking Group, previously known as Secure Trust Banking Group, listed on the Alternative Investment Market (having previously been listed on the London Stock Exchange). Over the past five years, share prices have steadily risen, and have seen a 22.66 per cent rise in the past 12 months.

Asos, the online fashion retailer, is one of the most famous success stories since Aim’s debut in 1995. Asos was initially priced at 3p and share prices once soared as high as £70 (now close to £38, after a major swing in value). Since the beginning of the year, shares have risen by 49 per cent.

Fevertree Drinks
In 2005, Charles Rolls and Tim Warrillow joined forces to change the face of tonic water, finding an alternative preserver to sodium benzoate and instead using high quality quinine. A newbie to Aim, share prices have soared 65.51 per cent in the past six months. Today, the company sells more than 60m bottles of its premium mixers in 50 markets.

Fitbug tracks sleep, steps, and estimates calories burned, and was founded in 2005 by ex-management consultant Paul Landau. At around £40, the Fitbug Orb device affordable compared to its competitors and it is now stocked by major retailers. Its share price soared late last year, and despite a correction this January, is still up 675 per cent in the past 52 weeks.

GW Pharmaceuticals
One of Aim’s great success stories, GW Pharmaceuticals – the biopharmaceutical company founded in 1998 and best known for its MS treatment product Sativex – is listed on both the Nasdaq Global Market and Aim. In the past five years, share prices have rocketed from just over a pound, to 655p today.

Majestic Wine
A favourite tipple of investors in the Aim for years, Majestic Vintners opened its first wine warehouse in Wood Green in 1980. In 1996, the company floated and it now has 200 stores and an online platform. Despite a rocky 2014, Majestic’s share price has risen 4.67 per cent in the past year.

You may be surprised to learn that a company specialising in tableware has become one of the most successful in the UK today. Over 40 per cent of its sales are to the North American market, and the company sells almost as much to South Korea as it does to the UK. Portmeirion has never cut its dividend and has been paying out since 1982.

Nevertheless, the market has been plagued by poor returns and a host of corporate failures – including some high profile fraud cases (the Langbar International fraud was once branded “the greatest stock market heist of all time”). And let us not forget that the market has performed pretty poorly over the years, with annualised total returns of -1.6 per cent per year when measured over the past two decades.

Nonetheless, Aim shares have surged in popularity since 2013, when they became eligible for inclusion in Isas. The high-risk factor had previously stopped the government from removing the restriction, but a desire to ensure that small and medium-sized companies – which are driving the economic recovery – have sufficient access to funding led to it reversing this decision.

It was the right choice: without Aim, there was a risk these companies would have turned to Nasdaq, or simply failed to grow. Research from Grant Thornton has also revealed that the companies listed on Aim paid £2.3bn in taxes in 2013 and directly employed 430,000 people at the end of that year.

For investors, Aim shares remain one of the most tax-advantaged options. If held through an Isa, benefits include no capital gains tax (CGT), no tax on dividend income, and no stamp duty. In addition, once certain Aim shares have been held in an Isa for a two-year period, they can qualify for Business Property Relief (BPR) and thus up to 100 per cent exemption from inheritance tax (IHT).

But the market is volatile: in 2008, for example, it lost around two-thirds of its value. Neither does the market offer plain sailing for the smaller companies that choose to list on it. Analysts predict that floating on Aim can cost anywhere between £400,000 and £1m – so for businesses with a projected market capitalisation of less than £25m, it may not be worth considering. 2014 research from accountancy firm UHY Hacker Young found that professional fees paid by companies to brokers and nominated advisers for a placing on aim accounted for 9.5 per cent of all funds raised.

And many of the mining, oil and gas companies (which account for a whopping 40 per cent of the market) that listed on Aim have since gone bust – among them ScotOil, African Minerals and Independent Energy Holdings. Firms involved in exploration for natural resources are among the riskiest of all: if a company digs for oil and there’s none to be found, the money raised for exploration has all but gone down the drain.

But should the government be doing more to serve the needs of smaller companies? Xavier Rolet, chief executive of the London Stock Exchange, certainly thinks so. Compared to the US, there are relatively few UK companies that progress to mid-size (and then on to become multibillion pound corporations like Facebook or Google). And as Rolet recently told the CBI:

“The entire business and financial community is working to nurture and celebrate these firms. But we must continue to challenge the status quo and not become complacent. We need to carry on fostering, through policy and practice, a richer, more diverse entrepreneurial ecosystem, so that the UK’s high-growth firms can take root and flourish.”

Rolet is right. Although floating your company isn’t the only way to grow a business, it needs to remain a workable option: particularly if we are to get the share-owning democracy that so many in the current government crave.

This article was first published by The Entrepreneurs Network.

In which we come over all regal and medieval

It was never quite true that if a medieval king or ruler felt that the quality of the advice he was receiving was slipping a bit, that then there would be a nice bloody purge of said advisers in order to buck up the quality of policy on offer from those who remained. Britain, certainly, never had quite such absolutism, something for which of course we should all be grateful. But there are times, even in this modern era, when such a policy seems most attractive:

He said EU regulations are the “single biggest impact on our business”. The EU is unleashing Europe’s beet farmers in 2017 by removing a production cap, in a move that is expected to push down prices 15pc by 2020. Farmers will be subsidised to counteract this drop, while cane sugar imports continue to face tariffs of up to €339 (£246) per tonne.

Leave aside the bleatings of the business affected by these rules. And savour instead the absurdity of them.

There’s poor people out there, poor people who would be delighted to sell us the sugar we desire at a price we’d be delighted to pay. So, instead of raising both our and their quality of life we tax what they would sell us. Then there’s the very much richer farmers of Europe, who do not wish to produce sugar for us to consume at any price that we wish to pay. So, we subsidise them to do so. And bringing up the rear is the lamentable Action on Sugar who are insisting that the whole sector should groan under yet another layer of taxes to prevent us eating what we subsidise the production of.

It is obviously true that waving a broadsword through the apparatchicki of an entire continent is not a liberal proposal. But boy, oh boy, is it still a tempting one. This is of course Kip Esquire’s Law, that if there were some rationalisation of the world, some attempt at planning, then we’d be the people getting to do said rationalising and planning rather than someone else doing it in a manner we might not appreciate so much. So back to the boring old, and markedly more liberal, ideas of persuasion, democratic politics and simple exposition of the absurd state of modern affairs.

We are subsidising the rich to produce something, we are taxing the poor who would provide us with that same thing and this is simply a nonsense. We should stop doing both.

Please, and our having asked nicely doesn’t mean we don’t enjoy the idea of getting a bit more regal and medieval about it all.

Excellent news; so there will be fewer milk farmers then?

Some people don’t seem to get the point of this market thing:

The boss of British yoghurt-maker Yeo Valley has warned that the removal of the EU milk quota system, which previously capped production will be another blow for struggling farmers.

Tim Mead, chairman of the Somerset-based dairy producer, said the removal of restrictions will encourage the industry to ramp up production, leaving farmers with a surplus of dairy products that they are then unable to sell.

Yes, this is rather the point of the changes.

Currently there are restrictions upon production. This means that each producer is operating at inefficient levels: they require more inputs in the form of land, labour and capital than the level of their output should require, because of those production restrictions.

So, we remove those production restrictions and the more efficient of those producers will expand their production, from very much the same set of inputs. This does of course mean that the less efficient producers then go out of buseinss. Allowing those inputs, that land, labour and capital, to be repurposed to go off and produce something else which satiates some other human desire or want.

That is, we all become richer by removing those production constraints. Because, from our same set of inputs, we get more human desires satiated. And this is the point and purpose of having an economy in the first place: to satiate, as best we can, as many human desires and wishes as we are capable of.

Removing production quotas will mean some milk farmers go bust. Good, that’s the point of removing the production quotas.

A blanket ban on psychoactive substances makes UK drugs policy even worse

It is a truth under-acknowledged that a drug user denied possession of their poison is in want of an alternative. The current ‘explosion‘ in varied and easily-accessible ‘legal highs’ (also know as ‘new psychoactive substances’) are a clear example of this.

In June 2008 33 tonnes of sassafras oil – a key ingredient in the production of MDMA – were seized in Cambodia; enough to produce an estimated 245 million ecstasy tablets. The following year real ecstasy pills ‘almost vanished‘ from Britain’s clubs. At the same time the purity of street cocaine had also been steadily falling, from over 60% in 2002 to 22% in 2009.

Enter mephedrone: a legal high with similar effects to MDMA but readily available and for less than a quarter of the price. As the quality of ecstasy plummeted (as shown by the blue line on this graph) and substituted with things like piperazines, (the orange line) mephedrone usage soared (purple line). The 2010 (self-selecting, online) Global Drug Survey found that 51% of regular clubbers had used mephedrone that year, and official figures from the 2010/11 British Crime Survey estimate that around 4.4% 16 to 24 year olds had tried it in the past year.

Similarly, law changes and clampdowns in India resulted in a UK ketamine drought, leading to dabblers (both knowingly and unknowingly) taking things like (the once legal, now Class B) methoxetamine. And indeed, the majority of legal highs on offer are ‘synthetic cannabinoids’ which claim to mimic the effect of cannabis. In all, it’s fairly safe to claim that were recreational drugs like ecstasy, cannabis and cocaine not so stringently prohibited, these ‘legal highs’ (about which we know very little) probably wouldn’t be knocking about.

Still, governments tend to be of the view that any use of drugs is simply objectively bad, so the above is rather a moot point. But what anxious states can do, of course, is ban new legal highs as they crop up. However, even this apparently obvious solution has a few problems— the first being that there seems to be a near-limitless supply of cheap, experimental compounds to bring to market. When mephedrone was made a Class B controlled substance in 2010, alternative legal highs such NRG-1 and ‘Benzo Fury’ started to appear. In fact, over 550 NPS have been controlled since 2009. Generally less is known about each concoction than the last, presenting potentially far greater health risks to users.

At the same time, restricting a drug under the Misuse of Drugs Act 1971 requires evidence of the harm they cause (not that harm levels always bear much relation to a drug’s legality), demanding actual research as opposed to sensationalist headlines. Even though temporary class drug orders were introduced in 2011 to speed up the process, a full-out ban still requires study, time and resources. Many have claimed the battle with the chemists in China  is one lawmakers are unlikely to win.

And so with all of this in mind, the Queen’s Speech on Wednesday confirmed that Conservatives will take the next rational step in drug enforcement, namely, to simply ban ALL OF THE THINGS.

In order to automatically outlaw anything which can make people’s heads go a bit funny, their proposed blanket ban (modelled on a similar Irish policy) will prohibit the trade of ‘any substance intended for human consumption that is capable of producing a psychoactive effect’, and will carry up to a 7-year prison sentence.

Somewhat ironically for a party so concerned with preserving the UK’s legal identity it wants to replace the Human Rights Act with a British Bill of Rights, this represents a break from centuries of British common law, under which we are free to do something unless the law expressly forbids it. This law enshrines the opposite. In fact, so heavy-handed and far-reaching is the definition of what it is prohibited to supply that special exemptions have to be granted for those everyday psychoactive drugs like caffeine, alcohol and tobacco. Whilst on first glance the ban might sound like sensible-enough tinkering at the edges of our already nonsensical drug policy, it really is rather sinister, setting a worrying precedent for the state to bestow upon citizens permission to behave in certain ways.

This law will probably (at least initially) wipe out the high street ‘head shops’ which the Daily Mail and Centre for Social Justice  are so concerned about. However, banning something has never yet simply made a drug disappear. An expert panel commissioned by the government to investigate legal highs acknowledged that a 50% increase in seizures of Class B drugs between 2011/12 and 2013/14 was driven by the continued sale of mephedrone and other once-legal highs like it. Usage has fallen from pre-ban levels, but so has its purity whilst the street price has doubled. Perhaps the most damning evidence, however, comes from the Home Office’s own report into different national drug control strategies, which failed to find “any obvious relationship between the toughness of a country’s enforcement against drug possession, and levels of drug use in that country”.

The best that can be hoped for with this ridiculous plan is that with the banning of absolutely everything, dealers stick to pushing the tried and tested (and what seems to be safer) stuff. Sadly, this doesn’t seem to be the case – mephedrone and and other legal and once-legal highs have been turning up in batches of drugs like MDMA and cocaine as adulterants, and even being passed off as the real things.  Funnily enough, the best chance of new psychoactive substances disappearing from use comes from a resurgence of super-strong ecstasy, thanks to the discovery of a way to make MDMA using less heavily-controlled ingredients.

The ASI has pointed out somanytimes. that the best way to reduce the harms associated with drug use is to decriminalise, license and tax recreational drugs. Sadly, it doesn’t look like the Conservatives will see sense in the course of this parliament.  However, at least the mischievous can entertain themselves with the prospect that home-grown opiates could soon be on the horizon thanks to genetically modified wheat. And what a moral panic-cum-legislative nightmare that will be…

There’s a difference between the intent of regulation and the effects in the real world

We have another of these lovely examples of how the intent of a regulation can be very different indeed from the effect of said regulation out there in the real world. We’ll assume that most people are pretty cool with there being regulations against murder and punishments for breaching them. We’re also pretty sure that such regulations and punishments reduce the number of murders that occur. So, sure, some regulations can indeed be beneficial, achieve their stated goal.

We can also look around the world and see those gurning idiots in South America who think that if you peg the price of toilet paper nice and low then the poor will be able to afford toilet paper. Of course, what happens is that no one can afford toilet paper as no one is willing to make it for this new and lower price. Regulations can have the opposite effect to that intended.

And then there’s, well, then there’s this:

Fair or not, this latest evidence of the risks of informal surrogacy arrangements, in the context of Britain’s strict regulatory code, can only encourage more parents to bypass local options and head straight for a poorer or developing country. In India, for example, surrogates are plentiful, screened and by all accounts more dependable than British volunteers.

Leave aside, for a moment, any judgement on either the morality or desirability of such surrogacy. And consider the statement there. That strict regulation of who may do what and when drives the very activity itself out of the regulatory net. Does this regulation therefore achieve its aim? We would say probably not. The take away from this specific example being that, if one wanted to keep the activity inside the regulatory net then one would probably argue for a lighter touch with the regulation.

This observation is of a great deal mpore use than just talking about reproductive technology of course. It’s from the one side, the argument used in favour of legal abortion: without the legality it would still take place on those fabled backstreets and this would be worse. And it, from the other side, informs our attitude towards recreational drugs. As is obvious it’s going to happen anyway. So, loosen the regulations on whether people can or not so as to bring the activity into the regulations on purity and safety. Which is, as should be obvious, exactly the same as that abortion argument. Both are arguing that regulation should be pitched at the level to minimise harm, that only being possible when regulation is sufficiently light for the activity to remain regulated at all.

Thus it is essential that all regulation be “light touch” regulation. Within a wide and highly variable definition of “light” to be sure, dependent upon the specific activity. But it must always be light enough not to drive the activity underground and thus out of the reach of any regulation at all.