Many Californian cannabis companies are in need of quick cash to sustain or grow their businesses, and as funding in traditional realms is drying up, real estate deals are fast becoming solid options.
Selling cultivation land, storage or processing facilities, even retail storefronts, to marijuana-focused real estate investment trusts (REITs) is providing many business owners with cash upfront. Those cannabis companies then sign long-term leases with their new landlords. And by doing so, business owners become tenants withing the properties that once belonged to them.
In recent months, a slew of cannabis companies have taken advantage of sale-leaseback deals, including: Cresco Labs, Columbia Care, Green Thumb Industries, Acreage Holdings, and Grassroots Cannabis, to name a few. Together, sales from these multi-state companies brought in well over $200 million when selling properties then leasing those back from the new owners.
If you are considering a lease-buyback deal to help inject your cannabis company with some cash, our Orange County marijuana business attorneys are here to help.
Cannabis Investment Tightens Up
As many cannabis business owners know all too well, banks are unwilling to lend to marijuana-based businesses, so cannabis venture capital from wealthy individuals, venture funding and family offices, have long been the most solid bets for capital. Only now those sources are fast drying up too.
Mike Regan, equity analyst at Marijuana Business Daily, explained, “Both private and public equity funding has become scarce as the publicly traded stocks dropped about 50 percent in the second half of 2019.”
That positions real estate buy-back deals as strong options, and much needed finance alternates, for business owners right throughout the cannabis industry.
Californian Company Leading the Pack
Californian-based companies like Innovative Industrial Properties (IIP), have started gaining momentum and are now becoming big players in the cannabis real-estate game. IPP is easily the largest marijuana-focused REIT, and has been for some time, starting back with it became the first cannabis-focused company to trade on the New York Stock Exchange in 2016.
By January of this year, IIP’s portfolio encompassed 46 cannabis properties across California, New York, Illinois, Michigan, Florida, Minnesota, Pennsylvania, Nevada, Arizona, Ohio, Colorado, and Maryland. Combined, the footprint of their facilities reaches in excess of 3.1 million square feet. For context, that is approximately the same size as your local Walmart Supercenter, seventeen times over.
Old School Finance Tool
Sale-leaseback arrangements are not uncommon outside of the cannabis industry. This same tactic is widely used by companies selling and then leasing back office buildings, warehouses, shopping centers, apartments, hospitals and casinos.
As the federal government continues to view cannabis as a Schedule 1 drug, which has limited funding pools available to business owners right across the industry, sale-leaseback deals have emerged as very attractive finance options.
Before proceeding with a sale-leaseback deal, businesses should consider the following:
- Only a small group of real estate investment trusts (REITs) specialize in cannabis sale-leaseback deals.
- Be sure to understand the terms of changing a deal, as well as the financial viability of your investor (usually a REIT).
- Plan how to invest funds generated by a sale to help you expand your business.
- Always avoid growing emotionally attached to any piece of real estate, especially in business. Instead, remember real estate is an asset that can be liquidated if necessary.
The illegality of cannabis at a federal level certainly does not help the funding woes rippling throughout the marijuana industry. But improvising can help companies to grown and thrive in constraining times. Even as sources of capital typically available to cannabis-based businesses begin to dry up, sale-leaseback deals remain strong sources of alternative funding worth considering.
The Los Angeles CANNABIS LAW Group represents growers, dispensaries, ancillary companies, patients, doctors and those facing marijuana charges. Call us at 714-937-2050.
Schedule 1 – Drug Enforcement Administration