Cannabis cultivation leasing companies undergoing growth spurt

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By Omar Sacirbey

Prospective marijuana growers who lack the money to bankroll their own sites increasingly are turning to companies that specialize in leasing land to cannabis cultivators.

That has created a mini boom in the emerging real estate leasing business – and given cultivators a new avenue for launching their companies.

Executives with real estate firms that lease to marijuana growers say the market for their services is large and growing, fueled by increased demand for cannabis and the need for land to grow the plant.

Investors, meanwhile, are pouring millions of dollars into these businesses. Looking ahead, the expected growth of these companies is expected to transform cannabis cultivation, with mega grow sites becoming more the norm, some experts said.

“Cannabis is going to be a $20 billion industry in 2020. Someone is going to have to build millions of square feet of infrastructure, which is going to take billions of dollars to produce the product that will generate that forecasted revenue,” said Tim Keogh, CEO of Denver-based AmeriCann, which has properties in Colorado, Illinois and Massachusetts. “As of now, the infrastructure isn’t there to meet those numbers.”

The land leasing business has certain attractions, apart from being a part of the overall growing marijuana industry.

Leasing company executives don’t actually touch the plant – so they don’t carry any personal risk – and there is relatively limited competition because of the specialized skill set and the large amount of money needed to bankroll such an operation.

“In this industry, there’s plenty of room for people who have the skills that we bring to the table, and an opportunity for everybody to be successful because the growth within the industry is quite high,” said George Stone, CEO of Kalyx Development, a Manhattan real estate company that leases property to indoor cannabis growers and operates properties in Colorado, Washington and Oregon.

Investor Interest

The companies that have started in this business are attracting the attention – and checkbooks – of small and not-so-small investors.

FutureLand Corp., a Denver-based cannabis cultivation leasing company, made waves recently when the Kodiak Group, a mainstream private equity firm, bought $1 million of its stock.

Publicly traded Kalyx, a real estate investment trust, or REIT, raised $25 million last November and announced in May it was out to raise a Series B round of between $25 million-$35 million. 

And AmeriCann made headlines in April when it invested $4.15 million in a nearly 1-million-square-foot cultivation and processing facility in Freetown, Massachusetts.

Later that month, it converted itself into a REIT. These companies provide investors certain advantages, including comparatively high yields, relatively straightforward tax rules, and liquidity because their shares are bought and sold on a stock exchange.

A Better Cultivation Model?

The exploding need for grow property is expected to drive what cultivation facilities look like in the near future. Smaller facilities, as in 10,000 or 20,000 square feet, will be supplanted by gigantic sites with hundreds of thousands – even millions – of square feet of space, some experts predicted.  

The “path forward” will look more like today’s commercial agricultural produce cultivation operations, Keogh said. “Look at produce, grown in master-planned greenhouses with built-in efficiencies. Those efficiencies haven’t been brought to the cannabis industry. We are bringing them in,” AmeriCann’s Keogh said.

The numbers are alluring, and renting property to money-making cannabis cultivators seems like a simple enough business model to manage, given that business owners aren’t technically touching the plant.

Because few companies currently are in this emerging real estate business, there’s plenty of room for competition. And those companies that are getting into it account for only a miniscule amount of cannabis-related property in this country, observers said.

“In all forms of real estate, there are hundreds of competitors, and there seems to be enough business to go around,” Kalyx’s Stone said.

Special Skills

So why aren’t more players jumping into this business sector?

It’s tough to launch such a business. Renting commercial-scale grow space requires significant investment capital and a specialized skillset that few people possess.

Companies don’t simply buy land, lease it and leave tenants to fend themselves. Rather, they invest significant capital – Stone said the low seven figures – to outfit a site for cultivation, including climate control equipment, power, drainage, and even testing equipment.

Moreover, not everyone thinks leasing is the best way to go.

“There are some potential quagmires there,” said Cameron Cox, CEO of FutureLand, which owns two cultivation properties in Colorado. By quagmires, he meant local political foot-dragging that can make it hard to get all the permits required to start such a grow site.

“It’s not nearly as lucrative as growing itself,” Cox said, although he’s not done with leasing. “As the industry matures, there will be people who need this.”

Omar Sacirbey can be reached at [email protected]

10 comments on “Cannabis cultivation leasing companies undergoing growth spurt
  1. Brett Roper on

    If they executed it could have been on a part of the $1M PIPE which would explain the lesser volume and recent slide? Based upon the activity I would tend to agree with Alan.

    Reply
  2. Dave Armstrong on

    This is just another shinning example of how for-profit corporations think they can “profiteer” from unlawful business activities. How to make money from aiding and abetting illegal business operations does not protect capitalist simply because they’re not actually growing marijuana themselves! Until Uncle Sam removes marijuana from the CSA no one should be “profiting” from such plain and simple! Skirting around the truth and the facts won’t protect anyone and greedy investors know this which is why the come up with these schemes and the appearance that they’re helping the process because they have deep pockets and seek profits!

    Dave Armstrong
    Managing Member of MediMarts

    Reply
  3. Growsome on

    Like I have said in prior posts the Industry is going to be dominated by big money so what are large growers now will be small growers in scale later. The costs will go down which is good. But the small ones will have their margins squeezed. Story of Commerce everywhere. The Big Pig shoves the small Pig away from the trough.

    Reply
    • Adam Watson on

      Hmm… Should have been that way after Prohibition, but when the big boys rebuilt their mega breweries there was still plenty left over for small and medium companies providing better quality and even regional pride. I can imagine a larger proportion of mega grow harvests to go into edibles as compared to the “Craft” growers that are more likely to offer higher quality, fresher product and wider varieties of flower that will capture enough micro and regional success to challenge mega grow operations. Sure, mega growers are expected to have an impact, but I can’t imagine the market will allow them to prosper exclusively.

      Reply
  4. Potted Plant on

    Big Business always has onerous regulations passed so that smaller ones can’t compete so that remains to be seen.

    Reply
  5. Lease me on

    Land leasing also carries risk when a lot of land is contaminated with heavy metals etc. The land owners will be sued as well as the cultivators. There’s also a RICO rick from EPA.

    Reply

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