Marijuana Business Magazine February 2020

February 2020 | 73 L arge multistate marijuana companies increasingly are turning their real estate into quick cash that provides a valuable source of funding. They’re doing so by selling cultivation, processing and storage facilities—and, in some cases, retail stores—primarily to cannabis-focused real estate investment trusts, or REITs. In exchange for the upfront cash, the companies sign a long-term lease with their new landlord. After the agreement, such businesses are tenants in the properties they once owned. “A sale-leaseback gets cash in the door,” said Mike Regan, equity analyst at Marijuana Business Daily’s Investor Intelligence. In the fourth quarter of 2019 alone, Cresco Labs, Columbia Care, Green Thumb Industries, Acreage Holdings and Grassroots Cannabis together raised more than $200 million by selling properties and leasing them back. (See chart on page 78.) These sale-leaseback deals included properties in Florida, Illinois, Massachusetts, North Dakota and Pennsylvania. Such transactions come at a time when cannabis capital investments are drying up from sources such as venture funding, family offices and wealthy individuals. Most banks, meanwhile, avoid marijuana companies. “Both private and public equity funding has become scarce as the publicly traded stocks dropped about 50% in the second half of 2019,” Regan noted. TRADITIONAL VEHICLE Sale-leaseback transactions are common in non-marijuana real estate asset classes, including office buildings, apartments, shopping centers, warehouses, hospitals and even casinos. The deals can be especially attractive to the cannabis industry, given that marijuana remains illegal at the federal level and businesses have limited funding opportunities as a result. “Our industry just does not have as many options as traditional businesses,” said Joe Caltabiano, the president and co- founder of Chicago-based Cresco Labs. Andy Grossman, chief of capital markets at Green Thumb Industries in Chicago, agrees. “No bank will give you a mortgage on your real estate,” he said. Marijuana companies increasingly are tapping an alternative source for instant cash: real estate they own—especially industrial properties such as cultivation facilities. Multistate operators in recent months have raised tens of millions of dollars through sale-leaseback deals. Companies considering a sale-leaseback transaction should keep the following in mind: • There’s nothing exotic or unusual about sale-leaseback deals. Main- stream companies often use them as a way to raise cash. • A handful of real estate invest- ment trusts (REITs) specialize in sale-leasebacks for the cannabis industry. • Do thorough due diligence. For ex- ample, know the terms of changing the deal and the financial health of the investor, typically a REIT. • Have a plan for how to invest the proceeds from the sale, such as expanding the business. • Cannabis company owners should avoid becoming emotionally at- tached to real estate. Marijuana companies are obtaining a key source of funding by selling off real estate through sale-leaseback deals