A new Ontario-based limited partnership created to buy cannabis-based real estate businesses called Subversive Real Estate Acquisition REIT closed on its initial public offering by raising $200 million. Making this the largest post-market correction equity capital raise to date. Subversive REIT also began trading its Class A Restricted Voting Units on the NEO Exchange as NEO:SVX.UN.
While most cannabis companies have been struggling as money quickly dried up, this raise was done in less than two weeks. Particularly notable was that it was done in December when most people were focused on the holidays. The company said that the initial tranche of capital will potentially be allocated to only a portion of Subversive REIT LP’s broader pipeline of high-quality real estate assets. Particularly those in need of non-dilutive growth capital to fund high-ROI investment opportunities like expansion into new geographical markets.
The Subversive REIT brings together three cannabis industry-leading investment companies, including Subversive Capital, an investment firm with a diverse portfolio and which raised $575 million in 2019 for a cannabis special-purpose acquisition company (SPAC) called the Subversive Capital Acquisition Corp. (NEO: SVC.A.U), The Inception Companies, a private opportunistic investment firm based in Beverly Hills and London and Canaccord Genuity. Inception REIT’s management team launched a private, independent platform in 2018 providing real estate capital solutions to leading operators in the U.S. cannabis industry, is managing the SPAC.
Subversive REIT said it looks to provide capital to top cannabis operators via real estate sale-leasebacks transactions across retail and industrial assets. Richard Acosta, founder and CEO of Inception REIT, as well as founder and CEO of IA REIT Advisors (external manager of Inception REIT), will be heading Subversive REIT as director and CEO.
Numerous cannabis companies have begun selling their real estate assets as a way to generate cash. The leaseback model has worked as a way to maintain their business location while monetizing a valuable asset. Most cannabis companies found that in the early days of the industry, banks were unwilling to lend money for mortgages and most were forced to buy buildings. Landlords were also unwilling to rent their buildings to cannabis companies and this added to the challenge of finding a place to do business.
Several companies like MedMen (OTC: MMNFF)and Acreage Holdings (ACRG.U)created separate real estate companies that would buy the buildings and then set up the lease arrangements. Innovative Industrial Properties (NYSE: IIPR) was the first REIT to identify this opportunity within the cannabis industry and has been handsomely rewarded for being first to market.