Please use symbol entry at top right of page to search

EXCLUSIVE: Despite Recent Market Pressures, Cannabis REITs Are Growing Like Weeds. Several Industry Execs Explain Why

Cannabis REITs are growing like weeds amid an uncertain regulatory landscape. 

Several cannabis execs talked about the advantages of the REIT structure Wednesday at Benzinga's Cannabis Capital Conference in Chicago.

What To Know: REITs, or Real Estate Investment Trusts, often raise money from outside sources and use those funds to buy and sell income-generating properties. The cannabis industry faces an uphill regulatory battle, and more and more companies are exploring different ways to raise capital. 

"Cannabis itself is a very capital intensive asset. To grow quality cannabis you have to build a greenhouse or an indoor facility and that costs a lot of money," said Travis Goad, managing partner at Pelorus Equity Group.

With the cannabis industry still in its early stages, real estate is typically a cannabis company's number one asset, Goad said.

"These REIT structures allow us to pull capital from investors and, specifically for us in a mortgage REIT, make a first lien senior secured loan to help fund the growth of the industry," he said. 

There are several types of REITs including equity REITs, mortgage REITs, hybrid REITs and sector REITs. A majority of the panelists at Benzinga's Cannabis Capital Conference are involved with mortgage REITs, which directly lend money to operators to buy properties. 

There are REITs targeted at nearly every business across almost every business sector, Freehold Properties chairman and CEO Don Brain said. 

"I think particularly in the cannabis space, although it's a young industry, REITs make a lot of sense in the capital markets because there's no leverage available ... so it's a way for them to not dilute their equity capital and continue to grow their business," Brain said. 

Another reason why REITs are becoming more popular in the cannabis industry is that many of these companies are starved for capital and REITs can solve that problem, said Steve Miller, CIO of Viridescent Realty Trust.

"While we measure it out pretty judiciously ... it is available to strong operators with the right set of assets and properties," Miller said. 

Anthony Coniglio, president and CIO of NewLake Capital Partners Inc (OTC:NLCP), noted that the professional money management that REITs offer the cannabis space allows for banks to get more involved if the Secure and Fair Enforcement (SAFE) Banking Act were to be signed into law. 

See Also: EXCLUSIVE: How The CLIMB Act Could Level The Playing Field For Cannabis Companies With 'Major Change'

"As a group, we would benefit first from the banks focusing on the industry because banks want to lend money to a professionally managed diversified portfolio of commercial real estate before they'd spend a lot of their capital focusing on the sector," Coniglio said. 

NewLake Capital recently raised $90 million of additional credit capacity from banks, he said. 

"While there is some of that happening at the operator level, the banks and some of the large institutional investors like the professional approach that we bring to managing a portfolio of diversified properties," Coniglio said. 

Check out more from Benzinga's Cannabis Capital Conference here: 

Photo: Chris DeGail.

Search News

Filter Results

Publication Date
Topic
Provider
  • All

News, commentary and research reports are from third-party sources unaffiliated with Fidelity. Fidelity does not endorse or adopt their content. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from their use.