TREND WATCHING: MARIJUANA SALE-LEASEBACKS FINANCING DEALS GROW IN POPULARITY

Screengrab via CNBC

2020 may, as a recent segment on CNBC proclaimed, be the year to invest in legal cannabis as a private capital investor or investor syndicate.

A recent piece from Marijuana Business Daily sheds a little light on the ways large cannabis companies are increasingly finding ways to instantly raise tens of millions of dollars for financing when alternative options for the legal market remain few and far between.

To wit: They are selling their own cultivation, processing and storage facilities and immediately leasing them back, making the marijuana company a tenant and the real estate investor or investors being their landlord.

The phrase to note: Sale-leaseback transactions.

Why are sale-leaseback transactions worth noting? As per MJBizDaily: “Unlocking the value of real estate with a sale provides money that can be used to grow a marijuana firm’s core business, without diluting the value of its stock, the way issuing more shares would.”

Mike Regan, an equity analyst for MJBizDaily’s Investor Intelligence, said “a sale-leaseback is like selling your house for cash, renting it back and still living in it.” He noted one big upside is “it gets cash in the door today and reduces capital expenditures, freeing cash that can be used to fund additional projects.”

Some key takeaways from the piece:

“Unfortunately, the cannabis industry doesn’t have the alternatives a typical business has, according to Andy Grossman, chief of capital markets at Green Thumb Industries, because marijuana remains illegal at the federal level. ‘No bank will give you a mortgage on your real estate; you can’t get a traditional mortgage,’ said Grossman, who noted that GTI in 2018 raised $250 million in equity and in 2019 raised $105 million in a debt offering.”

According to MJBizDaily, the biggest player in the marijuana sale-leaseback sector is IIPR.

IIPR CEO Paul Smithers

“As of Dec. 23, IIPR’s cannabis property portfolio included 42 cannabis properties in Arizona, California, Colorado, Florida, Illinois, Maryland, Michigan, Minnesota, New York, Nevada, Ohio and Pennsylvania. Together, the facilities cover more than 3.1 million square feet – the equivalent of about 17 Walmart Supercenters.

Operators have come to appreciate more the value of sale-leaseback transactions as an efficient manner to raise capital, without incurring substantial dilution in ownership,’ Paul Smithers, president and CEO of IIPR, wrote in an email to Marijuana Business Daily. Issuing more shares to raise money dilutes the stock of equity holders.”

Recent examples of sale-leaseback deals mentioned include:

  • In December, Chicago-based Cresco Labs closed a $50 million sale-leaseback deal in Lincoln, Illinois, with GreenAcreage Real Estate, a real estate investment trust (REIT).
  • Also in December, New York-based multistate operator (MSO) Columbia Care raised $35 million by selling and leasing back six properties in California, Illinois and Massachusetts. New Lake Capital Partners, based in Maryland, bought the properties.
  • In November, Green Thumb Industries, a Chicago-based MSO, completed a $39.6 million sale-leaseback deal for a cultivation facility in Pennsylvania with San Diego-based Innovative Industrial Properties (IIPR), the nation’s largest REIT to focus exclusively on the cannabis industry.
  • In October, New York-based Acreage Holdings, another MSO, signed a $72 million sale-leaseback deal for properties in Florida, Massachusetts and Pennsylvania. The buyer was GreenAcreage, created in May to buy properties from Acreage Holdings and other cannabis companies.

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If you’re an accredited investor looking for private placement opportunities in the legal cannabis space, visit www.cannpreneurpartners.com or email us today at invest@cannapreneurpartners.com to learn how you or your investing group and investor syndicates can access a stream of vetted cannabis investment opportunities from retail and cultivation, to tech, ancillary services, debt lending, real estate, and other deal flow opportunities through Cannapreneur Partners.

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