New Why Commercial Real Estate Investors Are Setting Their Sights on Cannabis
- Feb 23, 2022
As cannabis and hemp legislation expands and the “green wave” momentum continues throughout the U.S., investors are beginning to set their sights on cannabis-related assets. Real estate in particular is becoming a popular asset class for investors as states begin seeking ways to increase tax income through lifting restrictions on cannabis and hemp for medical or recreational purposes.
What initially caught the eye of many commercial real estate (CRE) investors and opened the market for the cannabis industry was its performance during the pandemic. Cannabis dispensaries were deemed essential in many states and allowed to continue operating, as opposed to traditional retailers, which took a major hit when they were forced to close. During that same time, multiple states reported legal marijuana sales from dispensaries reaching all-time highs, according to the International Journal of Drug Policy.
As marijuana is still classified as a Schedule I narcotic at the federal level, cannabis-related businesses continue to face restrictions in accessing the commercial financing they need to grow. Because of this, leaseback real estate transactions have become a popular choice of business owners looking to leverage their own assets to acquire capital from private investors.
In a sale-and-leaseback transaction, the business operator sells their assets, in this case dispensary, distribution, or growing properties, to a real estate investor, who then leases it back to them. According to a report by BENZINGA, some of these recent transactions include:
- $50-million deal involving Chicago-based Cresco Labs and GreenAcreage Real Estate, a New York-based REIT providing sale-leaseback and construction financing to cannabis operators.
- $35-million sale-leaseback transaction for six properties owned by New York-based multi-state operator (MSO) Columbia Care.
- $39.5-million sale-leaseback deal for Chicago-based MSO Green Thumb Industries’ cultivation facility in Pennsylvania with San Diego-based REIT Innovative Industrial Properties.
As the nation appears to be beginning to come out of the pandemic, many states are continuing to look at the cannabis industry as new way to generate tax revenue and promote local business growth. According to the Marijuana Policy Project, as of December 2021, states have reported a total of $10.4 billion in legal cannabis sales. As this trend continues, real estate investors will keep a close eye on the industry and where they can find returns.
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Eric Altstadter CPA is an Audit Partner and Chair of the firm's Cannabis and Hemp practice with over 30 years of experience working with public companies and privately held businesses
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