Real Estate Archives - Page 2 of 6 - Green Market Report

StaffOctober 18, 2021
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4min18290

Innovative Industrial Properties, Inc. (IIP)(NYSE: IIPR) has purchased a 201,000 square foot industrial property in Desert Hot Springs, California from Gold Flora, LLC for $51 million. Gold Flora will then lease the building and is expected to complete additional improvements for the property, for which Innovative Industrial has agreed to provide reimbursement of up to $9.0 million. Assuming full reimbursement for the improvements, IIP said its total investment in the property is expected to be $60.0 million.

“We are excited to welcome Laurie and the Gold Flora team as our newest tenant partner,” said Paul Smithers, President and Chief Executive Officer of IIP. “Gold Flora has established a strong reputation and presence in the largest regulated cannabis market in the world, California, and we look forward to supporting them as a long-term real estate capital partner for many years to come, as they continue to expand the breadth of their operations and reach throughout the state.”

Gold Flora was founded in 2017 and is a vertically integrated operator in California, including cultivation, manufacturing, distribution and retail. The company’s team includes Chief Executive Officer Laurie Holcomb, Chief Operations Officer Greg Gamet, Chief Financial Officer Chris Martin and Chief Cultivation Officer Phillip Hague. Earlier this year, Gold Flora announced a strategic partnership with Stately Brands, including the establishment of an advisory board to Gold Flora and financing to further expand Gold Flora’s retail operations, brands, and distribution network.

“Teaming with IIP on this transaction strategically unlocks capital for us as we focus on our continued growth in California, and we look forward to working with the IIP team for many years to come as our go-to real estate capital provider,” said Laurie Holcomb, Chief Executive Officer of Gold Flora. “In a few short years, I am proud of what our team at Gold Flora has accomplished, with our best-in-class line of products and strategic relationships that I believe will continue to distinguish us in the California marketplace, as we look to expand our footprint and distribution throughout the state.”

As of October 18, IIP now owns 76 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Texas, Virginia and Washington, representing a total of approximately 7.5 million rentable square feet (including approximately 2.8 million rentable square feet under development/redevelopment), which were 100% leased with a weighted-average remaining lease term of approximately 16.7 years. In addition to that, IIP said it has committed approximately $1.9 billion across its portfolio, including capital invested to date (excluding transaction costs) and additional capital commitments to fund future construction and tenant improvements at IIP’s properties.


Debra BorchardtSeptember 29, 2021
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9min18790

Cannabis real estate loan company Pelorus Equity Group has announced that its Pelorus Fund, a private mortgage real estate investment trust has closed a private placement of $42,250,000 aggregate principal amount of its 7% Senior Unsecured Notes due September 30, 2026. Possibly the even bigger news is that Pelorus, along with its Notes, received a BBB+ rating from Egan-Jones Ratings Company. This puts Pelorus on par with Innovative Industrial Properties (NYSE: IIPR), which also has a BBB+ rating.

“We’ve been experiencing great success from the transactions we’ve funded in the cannabis space, and are committed to keeping that momentum going,” said Dan Leimel, CEO of Pelorus Equity Group and manager of the Pelorus Fund. “Most banks are reluctant to offer capital to cannabis-related businesses, but our team has been forming strong partnerships with industry players for years now. Not only do we differentiate ourselves by forming trusted relationships, but we also continue to bring first-of-its-kind lending solutions to market that benefit the entire cannabis ecosystem.”

Pelorus said it plans to use the money from the offering for its operations which will include a new stabilized lending program with three- to five-year amortizing loans to quality sponsorship. It will be offered to current borrowers upon construction completion, as well as to new borrowers that meet the company’s underwriting criteria.

Leimel added, “I want to commend our team for achieving this first-of-its-kind win for the cannabis sector. Our BBB+ ratings reflect a critical achievement in the current growth phase of our Company, as well as our fiscal stewardship, robust portfolio, corporate governance, and  financial strength.”

Piper Sandler & Co. acted as the placement agent for this offering. Dentons served as counsel to the Company and Morrison & Foerster LLP served as counsel to the placement agent in connection with the Notes offering.

Pelorus Loans In Action

Last month Pelorus announced that it entered into a $19 million construction-financing loan with Item 9 Labs Corp. (OTCQX: INLB). The Pelorus’ loan money will be used to finance the acquisition of 44 acres of adjacent land next to Item 9 Labs’ 19,200 sq. ft. facility in Arizona, which has been operational since 2017. The loan will also be used to finance the master site development. Construction of phase 1 consists of three additional steel buildings and two greenhouses. This initial expansion adds 9,600 sq. ft. for indoor cultivation, 9,600 sq. ft. of lab and packaging, and a 9,600 sq. ft. head house to support the addition of the two 18,000 sq. ft. greenhouses. The total expansion will consist of six more buildings – one will be for expansion of the company’s lab and support space for the finished product, and the other five will be for indoor cultivation. Once complete, the Item 9 Labs site will comprise 640,000-plus sq. ft. of cannabis operations.

The collective loan balance across Item 9 Labs’ subject properties in Arizona and Nevada provides for a principal amount of approximately $19 million at an annual interest rate of 16% over a term of 18 months. Construction is expected to be completed over the next three years and will increase Item 9 Labs’ capabilities to meet the growing consumer marketplace and wholesale demands in Arizona and Nevada. 

Pelorus moved quickly on our complex transaction and was able to help navigate multiple hurdles on the way to closing when other previous potential lenders failed to perform. With the Pelorus team by our side, supporting our growth plans, we’re in a sound position to complete our expansion and capture more market share,” said Bobby Mikkelsen, CFO of Item 9 Labs Corp.

To date, Pelorus has completed 55 commercial real-estate loan transactions and deployed $204 million to cannabis businesses and real estate owners, comprising 1,750,000 sq. ft. in eight states across the U.S. With the ability to approve construction draws in an average of one to three days, and with one agreement covering the financing of the entire project, the Pelorus Fund helps to stabilize cash flow for its clients so they can remain focused on their core business goals and objectives.


StaffSeptember 28, 2021
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Goodness Growth Holdings, Inc.  (CSE: GDNS)(OTCQX: GDNSF) closed on a sale/leaseback deal with Innovative Industrial Properties, Inc. (IIP) (NYSE: IIPR) in New York. Goodness Growth reported that it sold IIP approximately 92.3 acres of land for $1.2 million. The site is next to Goodness Growth’s existing cannabis cultivation and processing facility in Johnstown, New York, which was formerly the site of a juvenile detention center. IIP said it plans to provide a tenant improvement reimbursement to Goodness Growth of roughly $55 million for the construction of a new 324,000 square foot cannabis cultivation, processing, and research and development facility.

“We are looking forward to beginning construction on this state-of-the-art facility in New York, which will immediately become the flagship cultivation and processing facility in our Company’s portfolio,” said Goodness Growth Chairman and Chief Executive Officer, Kyle Kingsley, M.D. “This facility will produce the highest-quality indoor flower we’ve ever produced and help prepare our business for the massive spike in demand expected when New York’s adult-use cannabis program goes online next year. This facility will also support the expansion of our retail network in New York as we look to open up to four new dispensaries next year, which would bring our total number of stores in New York to eight.”

Goodness Growth and IIP isad they will partner on the development of the project and will amend the terms of their existing lease agreement to incorporate the new facility. The initial annualized base rent will be 10.5% of the tenant improvement budget plus the purchase price, for a term of twenty years. The lease amendment contains a rent escalation clause that is triggered in the event that Goodness Growth doesn’t satisfy certain strategic benchmarks, which would increase the rent by 1.5%.

Goodness Growth is one of ten licensed operators in New York’s medical cannabis program. It was previously known as Vireo Health, but the company changed its name this past summer.  It currently operates four dispensaries in QueensWhite PlainsAlbany and Binghamton under the Vireo Health name, as well as its home delivery business which serves the New York City metro area. The company said it plans to rebrand all its dispensaries in New York to its Green Goods national dispensary brand after the onset of the adult-use program next year.

Goodness Growth also forecasts that it expects to generate total revenue in the range of $140 to $180 million in its fiscal year 2022 and that it expects to generate adjusted EBITDA in the range of $35 to $55 million in the fiscal year 2022.


Debra BorchardtSeptember 20, 2021
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Innovative Industrial Properties, Inc. (IIP) (NYSE: IIPR) paid $1.35 million for a property in Missouri and entered into a long-term lease with CPC of Missouri – Smithville, LLC (CPC), a subsidiary of Calyx Peak, Inc. (Calyx). CPC is expected to construct approximately 83,000 square feet of industrial space at the property, for which IIP has agreed to provide reimbursement of up to $26.72 million. IIP’s total investment in the property is expected to be $28.25 million. CPC said it intends to operate the property upon completion of construction as a licensed cannabis cultivation and processing facility.

“We are excited to announce this new long-term real estate partnership with Calyx, expanding our footprint into Missouri as our 19th state,” said Paul Smithers, President and Chief Executive Officer of IIP. “Calyx has developed a strong reputation for quality, award-winning cannabis products in California, and we look forward to working closely with the Calyx team in coming months on the development of this new state-of-the-art facility in Missouri, as Calyx expands its operational platform to meet the tremendous growth in demand from patients throughout the state.”

Calyx currently operates a 235,000 square foot cannabis cultivation facility in California, and expects to begin construction on a dispensary location in southern California in the near future. Calyx also has a Tier 3 cultivation license and a provisional adult-use dispensary license in Massachusetts, and expects to open a dispensary in the West Plaza neighborhood of Kansas City, Missouri later this year. Founded in 2016, Calyx is headquartered in Massachusetts and plans to be vertically integrated in three states by the end of 2022.

“We are thrilled to enter into this long-term real estate partnership with IIP for the development of this new facility in Missouri,” said Erin Carachilo, CEO of Calyx, and Lee Hoffman of CPC. “While less than one year since the launch of Missouri’s medical cannabis program, we have witnessed a tremendous rate of adoption by patients and growth in sales throughout the state, and look forward to completing the development of this facility, which will be designed with next-generation systems in a highly controlled environment that will enable us to bring our premium, diversified genetics at scale to Missouri patients.”

Missouri began legal medical cannabis sales in October of 2020, and regulated medical-use sales have grown rapidly since then, with total sales in August 2021 alone of approximately $22 million, according to the Missouri Department of Health and Senior Services. As of August 31, 2021, there were over 177,000 patient applications and 5,800 caregiver applications in the state. Missouri’s regulations provide for numerous qualifying medical conditions for treatment with cannabis, including, among others, cancer, epilepsy, PTSD, HIV/AIDS, terminal illness, Alzheimer’s and any chronic medical condition normally treated with prescription medication that can lead to dependence. In addition, petitions for Missouri voters to approve the adoption of an adult-use cannabis program are targeting the November 2022 ballot.

 


StaffAugust 20, 2021
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Cannabis REIT NewLake Capital Partners, Inc. (OCTQX: NLCP) closed on its initial public offering raising $102 million and began trading on the OTC on Friday August 20. The company closed on 3,905,950 shares of common stock at an initial public offering price of $26.00 per share.

“The closing of our IPO is a significant milestone and provides us with additional investment capital to continue our growth trajectory as one of the leading providers of real estate capital across the cannabis industry,” said David Weinstein, Chief Executive Officer of NewLake Capital Partners. “We want to express our gratitude to the investment community for supporting our initial public offering and believing in our long-term vision.”

NewLake Capital Partners is an internally managed triple-net lease REIT that purchases properties leased to state-licensed U.S. cannabis operators. NewLake currently owns a geographically diversified portfolio of 27 properties across 10 states with 8 tenants, comprised of 17 dispensaries and 10 cultivation facilities. The company said its tenants include companies like Curaleaf, Cresco Labs, Trulieve and Columbia Care. As of June 30, 2021, New Lake said these properties were 100% leased and primarily located in limited-license jurisdictions.

Anthony Coniglio, President and Chief Investment Officer of NewLake Capital Partners, commented, “NewLake’s current portfolio consists of assets leased to high-quality companies in the cannabis space. As the cannabis industry continues to expand, with additional states recently legalizing cannabis for medical or adult-use, the potential for further growth of our portfolio continues to accelerate. With the additional capital, we expect to expand our portfolio and increase our revenue streams to provide meaningful value to our shareholders.”

Executive Management

 Chairman of the Board of Directors, Gordon DuGan, most recently served as Chief Executive Officer of Gramercy Property Trust, a formerly NYSE-listed REIT, during which time the company grew substantially and was sold to Blackstone Equity Partners VIII, LP for $7.6 billion. Chief Executive Officer, David Weinstein, has extensive commercial real estate banking and investment experience and was formerly the Chief Executive Officer of a NYSE-listed office REIT. Anthony Coniglio, President and Chief Investment Officer, founded a cannabis REIT that the Company merged with in March 2021 and has more than 30 years of experience in real estate and banking. Board member, Peter Kadens, was the Co-Founder and former Chief Executive Officer of Green Thumb Industries, one of the leading cannabis companies, and provides valuable insight into the cannabis industry.


Debra BorchardtAugust 9, 2021

22min17490

Debra Borchardt, Editor-in-Chief, Green Market Report:

Rob Sechrist is the president of Pelorus Equity Group, a company that you may not be familiar with, but you will soon. This company is a little unique. It’s a mortgage REIT (real estate investment trust), not a traditional REIT. And Rob, why don’t you explain to our audience a little bit about that difference? Because most people are really familiar with their traditional REIT that buys buildings and then takes the lease money and gives that back to the shareholders. This is a little bit different. Can you go into that?

Rob Sechrist, President, and Co-founder of Pelorus Equity Group:  

Sure. Debra, thanks for having me. I’m happy to explain the difference. Most people are unfamiliar that there’s more than one type of REIT that traditional REIT owns properties, like IIPR. A mortgage REIT simply means that that is a lender that’s able to get the same tax advantages of a traditional REIT. Those tax advantages, just to re-clarify are 20% savings on your federal taxes. You only pay state taxes in the state that you’re domiciled.

GMR: 

Your company specifically focuses on the cannabis industry and what you guys do is help cannabis companies that need money to build out their facilities, which can be a really expensive endeavor for a cannabis company. How are you approaching these cannabis companies with this help?

Sechrist: 

Our background is what we call value-added lending. In our world “value add” means that we are improving the property with a portion of our loan is going back into the property with a pre-approved budget. Typically, it’s going to be tenant improvements. It could be ground-up construction, but this is the largest newly created asset class in the country. We’ve extrapolated the data that it’s about $50 billion real estate asset class that just magically appeared. When that asset class was created by the legislature, in each of these states, those properties actually in order for them to be legal the real estate needs to be approved and that side is one element of it. It has to be built out. It has to be a purpose for cannabis use tenant, and then the tenant, the cannabis use operator must also be approved by the state. Those two elements, once they’re plugged together, that is a legalized property and now you’re on your way and it’s one of the 50 billion.

GMR:

To your point with cannabis, it isn’t so easy to just go to a bank and get a construction loan. So you’ve put up all this money to buy this building. You’ve spent all this money to get these licenses and these applications approved. A lot of these companies have spent millions just to get to basically square one. That’s really just the first inning of the ball game. They still have to build out these facilities, which is even more money. A lot of times, they’re kind of starting to get tapped out at that point and they can’t just go to a typical bank and say, “Hey, we got to build out this building. We’re a legit company. We’re not doing things that are illegal.” But the banks are just like, “No way.” The major banks want nothing to do with this, right?

Sechrist:  

The major federal banks are not in the sector. The state banks and credit unions, there are 684 that are doing deposit relations for tier-one plant-touching operators and businesses. And of those banks, there’s probably a few dozen that are actually lending, but the banks are difficult to get loans in general. They certainly are not in the value add lending space at this time. And more importantly is that when you go to build a cannabis facility, typically these properties, the tenants are doing 10 to 15 times more revenue per month than a non-cannabis use tenant. And why I’m giving that and focusing on that is that to be focusing purely on your rate and points for the loan, as opposed to the speed of getting that property up and stabilized is very shortsighted. You want to get your property built as quickly as possible.

Our average borrower takes about 12 months to build and stabilize their property. And we’re typically processing 50 to 100 draws for the borrower to be reimbursed for the expenses that they’ve put out for the pre-approved budget. So for example, if your facility is doing one to $2 million a month or has the ability to do that, and you want to save a couple of percent, and even if it was a 10% difference between our rate and a bank rate, that premium might be a million dollars or $2 million in a year. But if you’re doing one to 2 million a month, that premium is absorbed, if we save them one month. Typically, we’re going to save at least 20% compared to other private lenders best in class and probably six months with a bank. And so it’s a no-brainer once you analyze it.

Unfortunately, the cannabis use borrowers are so focused on brands. They have so many things going on, compliance, inventory, genetics, all the stuff that they’re trying to deal with. A lot of them haven’t worked with a construction loan before, and they have only done their own home mortgage. The only thing they ever knew at that time was the rate and the points. So they’re not aware that you need a high-performance loan and they might get into a loan and realize, “This isn’t even going anywhere. I have to advance the money. I’m not getting reimbursed fast enough.” Usually the project comes to a stop. That is not the situation you want to be in. Plus Pelorus is the first dedicated holistic lender for the cannabis sector back in 2016. And we look at the cannabis use properties as a holistic approach. A bank does not do that.

We want to make sure that we provide all the money that is necessary or make sure that all that is encapsulated in our loan that gets the property acquired, built out with the tenant permits and the equipment to make sure that, that tenant can actually start operating. A bank would not provide all those features to that loan. And so you might have a situation where the tenant doesn’t have the money because the property is not cash flowing yet. And they’re not able to go raise that equity that’s necessary for the equipment to build it out. And this equipment is enormously expensive. Some of the equipment as a whole, for the project might be more than the purchase price of the building. And so if you are trying to go raise that money for equipment for a building you don’t even own, it’s a very difficult challenge. So you want to have a solution that is holistic in the approach. And we were the first to do that.

GMR:

One of the things that kind of differentiates Pelorus is your rates are quite high, but to your point, you’re getting the money to the client faster, correct?

Sechrist:  

We offer high-performance loans to achieve what the borrowers looking to do. 100% closing ratio of all the transactions that we’ve ever done. I don’t know if any other lender can say that. More importantly, or just as important as closing is to make sure that the facility gets up and running and built as quickly as possible. And so you need to look at that ratio of what is the pricing savings that you would get with a lower pricing loan as opposed to what is the opportunity revenue that we lost by not penetrating the market and not getting this facility up and running as quickly as possible. So as today, most of the cannabis community knows who we are and knows that this is the place that they want to go to get a facility built.

GMR:

How much money have you guys raised today?

Sechrist:

We’ve deployed more than $185 billion. We’ve got about $60 million going out in the next 30 days or so. So we’ll be to $250 million here in the very near future.

GMR:

You’re working with some pretty big names. I saw you’re doing a deal with Acreage Holdings (OTC: ACRHF) for a fairly large amount.

Sechrist: 

We did a deal with Acreage Holdings in the fourth quarter of last year. By the way, they are big enough that they could have gone to an institutional rate. So in that specific scenario, their board came to the realization that they needed to look at the entire cost of the capital, not just the pricing of the loan and they quickly determined in the end that was the direction to go after. Our pricing does shock people, but that’s because you’re buying a high-performance loan and there’s a lot to go into process, an unlimited amount of draws in one to three days. Nobody else can do that. That is so important. And that’s what you need to be focused on. If you want to go and take your time and have the lowest cost, and it really doesn’t matter how long it takes for that facility, then you probably want to start with another lender.

GMR: 

That’s pretty interesting. Now, we’ve seen a lot of situations in Canada with regards to overbuilding. Some of the companies like Canopy Growth (NASDAQ: CGC) has shut down some of their indoor facilities. Do you feel that because the United States is so early on in its legalization, that we’re not going to be in that kind of situation, that we have companies that could get overbuilt with regards to facilities?

Sechrist:    

So two comments there. In Canada, as far as we know, there’s nobody that had built a hundred thousand or a million square foot facilities that were at scale in the entire country and anywhere in the world. So you have people that are trying to scale from zero to a thousand or whatever on the first try and by the time that facility gets built, you realize we didn’t build this correctly, and you have to write that whole facility off. So, they didn’t have a learning curve and they made mistakes up in Canada that I don’t think that you’ll see duplicated. And certainly not to that same extent, that happened up there. One was, is that you really only had a gray market or illegal market operators that were mostly operating outdoors. Some of them might’ve had some indoor greenhouses, but they would have been tens of thousands of feet, not hundreds of thousands or millions of square feet.

When you go to that scale, you have different challenges that you’re trying to deal with. And if you get it wrong, you’ve already built the facility, before you realize we didn’t configure this properly. And it’s actually less expensive to sell this property and to go somewhere else. We started analyzing the sector because we realized that our skills in value add lending were immediately applicable to the sector. We analyzed it and we originated the first transaction in 2016. We only did small transactions to make sure that not only were we learning what the borrowers needed to do, but they were learning as well.

So we scaled with small facilities, 10,000 square feet, 20,000. Now, we do 100,000 square feet and larger, but we worked our way up to understanding the market. Secondly, we also built the first proprietary database where we analyze each of the cannabis operators that are licensed within each state. We identify who they are, what types of licenses they have and we associate what properties they’re in. We look at the average build cost, the average price per square foot of the universe of properties. For each of these types of licenses. So we know the size of the capacity of the market is existing. We also look at some other things with other technology we look at to understand, “Is this market reaching capacity from a production size? Is it oversupplied? Is it under-supplied?”

We’re monitoring all of that stuff. So we’re using data and facts to analyze this. Typically in most lending sectors of the country, there would be a hedge fund, or there would be a third party doing this and spending millions of dollars to analyze this. Well, we needed that data. So we had to make the investment ourselves and so today we have a very robust, what we call the big data project that we pull all that data and extrapolate it to help us make our decisions.

GMR:

I was wondering with regards to risks, so risks for your investors. In this situation, you’re lending money to these companies to build out their facilities. What is the risk that they potentially aren’t able to complete that facility, whether they’ve run into other problems elsewhere? Certainly, it’s the cannabis industry. We’ve seen lots of situations blow up pretty quickly. Are you, or have you seen anything like this, and have you seen other companies willing to then jump in and take over? What is your situation with that?

Sechrist:

We’ve originated more than 5,000 of these types of transactions. Whether you’re a cannabis company building a facility or somebody else building a facility, that’s an issue that we have to de-risk or look at. The way that we start is we first start with a feasibility review of the budget to make sure that, that budget is sufficient, regardless of who the contractor is. If we had to replace the contractor, that there’s sufficient capital, and it’s also reviewed to make sure the water’s there, the permits are in place, the electricity has ample to supply that for what we’re building, etc. We take that budget and we run it through our data to make sure that it’s sufficient, no matter who we use for the budget, that there’s enough capital. Then we build a contingency as well, just in case there are some overruns.

We start with that aspect and then as we are going through that project, actually the borrower has to advance the money first. Then we go and verify that the invoices have been paid. We get proof of payment. We get lien releases from the contractors to make sure that they can’t lien the project. Once all that’s been reviewed and completed, then we do a physical inspection to verify that those went into our property and you get a percentage of completion. So we’ve de-risked that and we’re prepared to fund that project and complete that project, whether it’s with our borrower, that contractor, or if we take it ourselves. So that’s on the property side. As far as the tenant or operator side, we also analyze to make sure that we’ve got a path through to replace that tenant ourselves, if necessary, if the borrower failed and if the tenant failed.

We have the ability to complete the building and we have the ability to replace the tenant. As far as our portfolio, we haven’t seen a situation where the tenant has not been able to be replaced. We don’t have any transactions that we’ve had to replace the tenant yet. We do have one of our borrowers that replaced another facility next door, not ours, but they did it in 90 days. We use that as a case study to make sure that what we’re thinking is as possible and what the timelines are. And once these facilities are built out, they have the power, the water, the infrastructure, the general configuration, isn’t going to change that much. Most of our facilities start with indoor cultivation, and then they might have some processing or some extraction, and some other things in there.

Once you’ve got kind of that layout, different operators reconfigure within those rooms, but the general gist of it, it’s going to be the same. Commercial properties are a lot easier to reposition walls and things than in residential houses where everything’s load-bearing. So it’s a different situation.

GMR:

Absolutely. So what are the plans for Pelorus for the rest of the year? Are you guys going to continue to raise money? I would assume keep lending.

Sechrist:

We’re scaling the company. We continue to add to our team. We just opened a New York office to get a presence on the East Coast. Our goal is to get to a billion dollars assets under management. Our investments in the company, from our team and our people that we work with are positioned on that on growth and to maintaining our position as the number one value add lender and the first and the most experienced in the sector.

GMR:

Well, there will certainly be a lot of activity happening in the Northeast, now that all the legalization is happening in New Jersey, in New York. Rob, thank you so much for taking time out of your very busy day to talk to Green Market Report.

Sechrist:                                       Thank you so much.

 


Kaitlin DomangueJuly 29, 2021
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9min21900

Smoking cigarettes indoors has been shown to reduce a home’s resale value by up to 29%, says Realtor.com. When it comes to buying a cannabis enthusiast’s home, the resale value research is less clear, though 30% of realtors say they have struggled to sell a house where cannabis was grown. A recent study conducted by the National Association of Realtors said 50% of leasing professionals found it wasn’t hard to re-lease a property after tenants smoked cannabis indoors, and the organization “does not have a position on cannabis legalization.”

Legal cannabis raises home value

There’s been a lot of chatter surrounding cannabis and the real estate market. But, what kind of impact do cannabis operations have on property value by simply just existing in the same town or city as your house? According to research by real estate data company, Clever, property values rose by $17,113 more in states where recreational cannabis is legal, compared to states where it’s illegal or just legal at the medicinal level. Not to mention, millions of dollars in tax revenue created. In 2021, average home values increase by $470 for every $1 million increase in overall tax revenue from cannabis. 

Clever combined data from Zillow, the U.S. Census, and other resources to produce their report. 

New businesses, tourism, and jobs all contribute to the increase

When it comes to answering the “why”, that’s a little more complex. According to Clever, there’s a variety of reasons why property values are increasing as cannabis legalization takes place. “Numerous factors determine home values, including the home’s features and condition, the area’s amenities, and local crime rates. Legalizing marijuana can impact each of these criteria in ways that are both predictable and surprising — particularly by creating fresh demand for housing, new businesses, and tourism,” says the report. 

We often look to Colorado as a model representing cannabis’ potential in different states. Legalization brought Colorado a wave of new business, and the crime rate also dropped. Also, hotel revenue rose by $130 million in the first year after Colorado legalized, according to a study conducted by Penn State

Key Findings

  • Home values increased by $6,338 from 2017 to 2019 in states where cannabis is legal in some form, compared to states that haven’t legalized at all
  • On average, home values increase by $470 for every $1 million increase in tax revenue
    • Eight states reported a full year of tax revenue generated from cannabis sales in 2020, totaling $2.3. $1 billion of that being California sales alone. 
    • The seven states (plus D.C.) who haven’t yet sold a year’s worth of legal cannabis are predicted to collect $601 million in new annual tax revenue.
  • Home values are predicted to increase by an average of $61,343 in states that have legalized recreational cannabis, but sales aren’t yet taking place.  
    • California has seen the biggest increase in home values, up by $128,341 since 2017, among states that have legalized at the recreational level
  • Cities with more dispensaries are positively correlated with higher home values, suggesting legalization boosts jobs and economic growth.
    • In cities with recreational dispensaries, home values increased by $22,090, compared to states where recreational cannabis is legal but not yet being sold in retail locations
    • Property values increase by $519 with each new dispensary a city adds

According to Clever’s future predictions, home values will increase by more than $60,000 on average.

Looking at tax revenue

When it comes to tax revenue, where does it all go? Different states allocate their tax revenue towards different things, but according to a report by Urban Institute, education programs (including community colleges and pre-K schools) are the most likely to benefit. 

Oregon, for example, donates 40% of its tax revenue to the state’s school fund, accumulating $180,252,103 between 2017 and 2021. Arizona recently legalized cannabis for recreational consumption, and they plan to follow suit by donating 33% of their tax revenue to the state’s community colleges. 

Other states use their tax revenue for different things, like Washington, where the tax revenue goes towards a healthcare trust account to provide basic healthcare services to people without insurance. Ranked from most to least common, here’s how different states use their cannabis tax revenue: 

  • Education programs
  • Substance abuse education and treatment programs
  • Reparations for those negatively affected by the War on Drugs/criminal justice reform
  • General funds
  • Transfers to local governments
  • Administrative costs of initiating new laws
  • Public health and safety programs
  • Law enforcement, crime reduction, and fire departments
  • Transportation and infrastructure
  • Programs for conservation
  • Programs for veterans

Cannabis’ impact on local communities

This is just another piece of evidence supporting cannabis’ positive impact on local and state economies. According to Leafly, the legal cannabis industry supports 321,000 full-time jobs across the United States, adding 77,300 of those last year. Not to mention the tax revenue generated from legal cannabis sales. Criminal justice reform, education, substance abuse treatment, and local governments all benefit from the new source of revenue. 

As the cannabis industry continues to grow, we see it positively affects more than just consumers. 


StaffJuly 12, 2021
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10min28700

This article by Nadja Sayej was originally published on Leverage.com and is being republished with permission.

On March 31, New York Governor Andrew Cuomo announced that the state would legalize medical and adult-use cannabis in the coming year. According to Cuomo, it’ll create over $350 million in revenue, and at least 30,000 jobs.

“This is a historic day in New York, one that rights the wrongs of the past by putting an end to harsh prison sentences,” Governor Cuomo said in a statement. “It embraces an industry that will grow the Empire State’s economy and prioritizes marginalized communities so those that have suffered the most will be the first to reap the benefits.”

New York is just one of 17 states across the country legalizing cannabis. In the coming months, marijuana plant-related businesses are going to be popping up all over the east coast, now that New York, New Jersey, Maine and Massachusetts have legalized cannabis, among other states with limited capacity (like Pennsylvania).

A cannabis real estate boom is likely to follow. The global legal cannabis industry is predicted to hit $40.6 billion in global spending by 2024, which will be a 300% increase from 2019, according to a report from Arcview Market Research & BDS Analytics.

But what exactly does this mean for commercial cannabis real estate?

The industry consensus is that it’s tough to get a cannabis business going; whether it’s getting a license or getting a location. Though the dispensary boom is all over, it will likely flock to touristic towns like Great Barrington, MA, known as a skiing town, which now has five cannabis dispensaries in a town of 7,000.

With cannabis coming to the states of New Jersey and New York, the market is expected to grow for adult-use cannabis starting this year in NJ, and on April 1, 2022 in New York.

“There is a lot of demand and not a lot of supply,” Brian Lauray from MMLG consultants recently said. “It will come down to the operators that have the money and can tweak many levers.”

Just look at Pennsylvania, a medical-only cannabis state (it isn’t legal for non-medical, recreational adult-use). Even still, they’ve seen their medical cannabis sales grow from $40 million in January 2020 to $98 million in January 2021, according to a report from Headset. Is this a sign of the cannabis real estate boom to come for other states?

“The short answer is yes,” said Akiva Gottlieb, a commercial broker at Lev Capital in New York City. “We will see top brands fit in nicely for trendy areas in New York City, Jersey Shore and Hoboken, and be picked up quickly by hippie-type areas. Just nowhere near private schools and corporate industries.”

Gottlieb explained that the country’s cannabis experts are well aware of the market oversaturation in the west and Midwest, from California to Colorado. Cannabis businesses will likely move to, or expand in, the east coast.

“Experts predict that your common shops like 7/11 and the likes will carry some sort of medical or recreational cannabis products,” Gottlieb said.

Cannabis financing is a key step to securing a property to address the hot cannabis real estate world. Gottlieb drew a parallel between the black market to the legalization of products over time. Take the prohibition era, where the 18th amendment banned the sale of alcohol, and now in 2021, where the sale of alcoholic drinks has already turned over $254,564 million, according to a report from Statistica, and is expected to grow roughly 6% before 2025.

The cannabis industry could see the same turnover, eventually. Cannabis real estate isn’t just dispensary retail, but where the product is grown, harvested, stored, sold, and consumed, all within state lines. Commercial real estate is in demand, not only for storefronts but warehouses and other types of related land.

“Previously determined ‘safe’ and ‘secure’ asset classes, like retail and multifamily are now considered volatile,” Gottlieb said. “We have seen a major shift in large institutional investment corps who were forced to pivot their core businesses toward alternative products.”

Could it be pandemic-proof? He explained that medical-use cannabis has been deemed an essential business during the pandemic in many states.

“With the likes of Target, Walmart, Burger King, and Starbucks closed, your local dispensary has been open servicing the community and racking up their revenue,” Gottlieb said. “And to our landlords, most importantly, they are paying their rent.”

To say the industry is growing is an understatement.

“As a commercial financing advisory firm, we come across numerous transactions that include some form of a cannabis element to it,” he claimed. “Ranging from a minority tenant in a strip mall to a triple net (NNN) lease on an industrial cultivation facility, cannabis is everywhere right now.”

Real estate firms like Lev are “approaching these deals just like we would any standard commercial asset,” Gottlieb said.

The future of cannabis in commercial real estate comes down to financing.

“As the industry develops more, more states will pass the Safe Banking Acts, which means that state-authorized marijuana businesses will have easier access to banking services,” Gottlieb said.

Gottlieb predicted that, by spring of 2022, many mainstream corporate and national banks will be on board with financing, “and will allocate significant capital under their balance sheet to this particular market.”

Here’s one step forward: Many real estate firms are adding a Cannabis Real Estate Division, like Lev has, to their websites. Just look at James Capital Advisors, which recently started a new Cannabis Real Estate Division in Los Angeles. With this sort of example, many other real estate companies who specialize in commercial real estate are likely to follow.

“The industry follows the cash flow, and the cash flow is overwhelmingly available in the cannabis industry,” Gottlieb said. “Especially in debt with firms like Lev, the people need assistance financing these unique properties and the brokers of our new modern world will fill that void.”

 


StaffJuly 7, 2021
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4min16170

Following the close of the market on Tuesday, cannabis REIT (Real Estate Investment Trust) Innovative Industrial Properties, Inc. (IIP) (NYSE: IIPR) posted its operating, investment, and capital markets activity from April 1, 2021, through today. The company’s first quarter ended in March, but since that time IIP has been very active.

IIP said that from April 1, 2021, through Tuesday, it has made four acquisitions for properties located in Massachusetts, Michigan, and Pennsylvania, and executed three lease amendments to provide additional tenant improvements at properties located in Florida and Pennsylvania. In these transactions, IIP said it established new tenant relationships with Sozo Companies, Inc. and Temescal Wellness of Massachusetts, LLC, while expanding existing relationships with Green Peak Industries LLC (Skymint), Harvest Health & Recreation Inc., Jushi Holdings Inc., and Parallel.

In addition, on June 25, 2021, IIP said it closed on a construction loan with a developer for the construction of a regulated cannabis cultivation and processing facility in California. IIP said it is expected to lend up to $18.5 million to the developer for the construction of an approximately 102,000 square foot building. Following completion of development of the property, IIP said it has an option to purchase the property and may execute a negotiated lease with an affiliate of the developer or with another third party if IIP determines to exercise its purchase option.

Capital Markets Activity

On May 25, 2021, IIP issued a $300 million aggregate principal amount of unsecured senior notes. The sale of the notes generated net proceeds of approximately $293 million, after deducting the initial purchaser’s discounts and commissions and offering expenses. The notes bear interest at 5.50% per annum, payable semi-annually in arrears on May 15 and November 15 of each year, until the maturity date of May 25, 2026. IIP said it intends to use the net proceeds from the offering to invest in specialized industrial real estate assets that support the regulated cannabis industry that is consistent with its investment strategy, and for general corporate purposes.

Portfolio

As of July 6, 2021, IIP owns 72 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Texas, Virginia, and Washington, representing a total of approximately 6.6 million rentable square feet (including approximately 2.2 million rentable square feet under development/redevelopment), which were 100% leased with a weighted-average remaining lease term of approximately 16.7 years.

As of July 6, 2021, IIP had invested an aggregate of approximately $1.6 billion (consisting of the purchase price and development and tenant reimbursement commitments funded, but excluding transaction costs) and had committed an additional approximately $347.8 million to reimburse certain tenants and sellers for completion of construction and tenant improvements at IIP’s properties, which does not include an $18.5 million loan from IIP to a developer for construction of a regulated cannabis cultivation and processing facility in California.

 


Debra BorchardtJune 24, 2021
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12min20840

Commercial real estate finance company AFC Gamma, Inc.  (Nasdaq: AFCG) priced its underwritten public offering of 2,750,000 shares of its common stock at a public offering price of $20.50 per share. AFC Gamma has granted the underwriters of the Offering a 30-day option to purchase up to an additional 412,500 shares of common stock. AFC provides loans to operators in the cannabis industry.

AFC Gamma anticipates total gross proceeds of approximately $56.4 million, before deducting underwriting discounts and commissions and other offering expenses and excluding any exercise of the underwriters’ option to purchase additional shares. AFC Gamma said it intends to use the net proceeds from the Offering to fund loans related to unfunded commitments to its existing borrowers, to originate and participate in commercial loans to companies operating in the cannabis industry that are consistent with its investment strategy, and for working capital and other general corporate purposes. The Offering is expected to close on or about June 28, 2021.

In May the company delivered its first fiscal quarter 2021 earnings with net income of $1.4 million, or earnings of $0.20 per basic weighted average share of common stock. Distributable earnings in Q1 2021 of $3.2 million, or $0.45 per basic weighted average share of common stock. Ending Q1 2021 net book value per common share of $16.18

AFC Portfolio

As of June 15, 2021, AFC’s portfolio was comprised of loans to 13 different borrowers, totaling approximately $158.6 million in total principal amount, with approximately $29.5 million in additional unfunded loan commitments to such borrowers. As of June 15, 2021, the loan portfolio had a weighted-average estimated YTM of approximately 21% and was secured by real estate, cash flows, and licenses. AFC said it reviewed 319 loan opportunities. As of June 15, 2021, it had funded 17 loans, of which three have been repaid, had entered into non-binding term sheets for three loans, had entered into a syndication commitment letter for one loan, and were evaluating 55 other loans.

The list of company loans as per the company’s filings are as follows:

Public Company A
Single-state cultivator, producer, and full-service brand fulfillment partner that produces a wide range of products in the Nevada market. Public Company A operates a +/- 400,000 square foot greenhouse and 55,000 square foot processing and custom packaging facility, which is capable of producing 140,000 pounds of dry flower per year. The real estate collateral of Public Company A consists of a greenhouse and processing facility in Nevada.
Private Company A
Multi-state operator with operations in six states. Private Company A is a vertically integrated cultivator and retailer of both medical and adult-use cannabis that primarily operates under its own brand. Private Company A’s business segments include cultivation, extraction and processing, retail products, and dispensaries. The real estate collateral of Private Company A consists of three cultivation facilities across Arizona and Michigan and ten dispensaries across Arizona, Maryland, Massachusetts and Michigan.
Private Company B
Single-state operator currently constructing an indoor cultivation facility to wholesale product to the medical and adult use markets in Michigan. Private Company B produces high-end cannabis strains and intends to focus on the high-end, top-tier cannabis niche. The management team has over 20 years’ experience in the cannabis industry, including ten years in Michigan. The real estate collateral for Private Company B consists of a cultivation facility in Michigan.
Private Company C
Single-state vertically integrated cultivator and retailer of medical cannabis. Private Company C operates under a Chapter 20 Clinical Registrant license and has partnered to collaborate on multifaceted studies to substantiate safety and positive therapeutic outcomes. Private Company C currently operates a cultivation facility and three dispensaries with the ability to add three additional dispensary locations. The real estate collateral of Private Company C consists of a cultivation facility and dispensary in Pennsylvania.
Subsidiary of Public Company D
Public Company D participates in the medical and adult-use market across Canada and in several US states where cannabis has been legalized for therapeutic or adult use. Subsidiary of Public Company D, is a premier medical marijuana cultivator, processor, and distributor in Pennsylvania. Public Company D also has operators in California and New Jersey. The real estate collateral for Subsidiary of Public Company D consists of a cultivation facility in Pennsylvania.
Private Company D
Multi-state operator who operates five dispensaries, the maximum amount of dispensaries allowed by law for any operator, in the State of Ohio and one dispensary in Arkansas. Private Company D historical focus has been dispensary operations and has licenses in other states, where it also operates dispensaries. The real estate collateral for Private Company D consists of three dispensaries across Ohio and Arkansas.
Private Company E
Single-state operator who operates one dispensary and is currently constructing an indoor cultivation facility to wholesale product for medical use in Ohio. Private Company E approaches the medical cannabis market from the healthcare and scientific perspectives of its founders and key executives, differentiating it in the industry. The real estate collateral for Private Company E consists of a cultivation and processing facility and a dispensary in Ohio.
Private Company F
Single-state operator currently constructing a cultivation/manufacturing facility and two dispensaries in Missouri and will lease two additional dispensary locations for a total of four dispensaries in the state. Private Company F’s management team has extensive experience operating retail operations in other states. The real estate collateral for Private Company F consists of a cultivation/manufacturing facility and two dispensaries in Missouri.
Public Company E
Multi-state operator with operations in four states. Public Company E is a vertically integrated cultivator and retailer in both Florida and Texas with cultivation in Michigan and retail operations in Pennsylvania. Public Company E’s Florida operations consist of two cultivation and processing locations as well as 23 dispensaries across the state. The real estate collateral for Public Company E consists of a cultivation facility in Michigan.
Subsidiary of Private Company G
Private Company G is a multi-state operator with assets across nine states. Subsidiary of Private Company G operates in New Jersey as an alternative treatment center which allows for one cultivation facility and three dispensary operations, all of which are being constructed using the proceeds of the loan to Subsidiary of Private Company G. The real estate collateral for Subsidiary of Private Company G consists of a cultivation facility and dispensary operation in New Jersey.
Subsidiary of Private Company H
Private Company H is a multi-state operator with assets in Arkansas, Florida, Maryland and Illinois. Subsidiary of Private Company H is a single-state operator that is currently expanding their cultivation facility in Illinois, which is licensed to grow both recreational and medical use cannabis. Subsidiary of Private Company H also operates two additional dispensaries in the state, one licensed to sell medical-use cannabis and the other licensed to sell both recreational and medical use cannabis. The real estate collateral for Subsidiary of Private Company H consists of a cultivation facility in Illinois.
Public Company F
Public Company F is an Illinois-based multi-state operator with approximately 75 retail locations across 14 states and has expanded via an aggressive M&A strategy. The real estate collateral for Public Company F consists of five cultivation facilities across Illinois, Florida, Nevada, Ohio, and Massachusetts and eight dispensaries across Illinois, Michigan, Maryland, Arkansas, Ohio, Nevada, Florida, and Arizona.
Private Company I
Private Company I is a Maryland-based single-state operator with an existing cultivation and processing operation in the state, as well as one operational dispensary.

Company Funding

Leonard M. Tannenbaum, who also serves as the Chief Executive Officer, invested approximately $47.8 million in AFC in August 2020.  The investment resulted in the Sponsor, directly and indirectly, acquiring approximately 3,342,500 shares of common stock, or approximately 20.7% of our common stock upon completion of this offering (or approximately 20.2% if the underwriters exercise their option to purchase additional shares in full). Additionally, Gamma Lending Holdco LLC, which is a fund controlled by Jonathan Kalikow, the Head of Real Estate, one of AFC’s directors and an affiliate of the Manager, and his father, invested approximately $9.6 million in cash in AFC in August 2020. The Sponsor, through AFC Finance, LLC, an entity wholly-owned by the Sponsor and Mr. Kalikow, has also provided us a $50.0 million secured revolving credit facility (as amended, restated, supplemented or otherwise modified from time to time, the “Revolving Credit Facility”).


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The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


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