Cannacurio #68: Real Estate Investment Trusts

The Cannabiz Media Business Intelligence product showcases data through a series of dashboards that now numbers over 30. One of the most unique data sets covers Real Estate Investment Trusts (REITs), which have played an outsized role in the cannabis industry.

We track REITs because the transactions are so closely linked to the licenses in our database. The analysis below focuses on which companies have relied on these transactions, where transactions occurred, and which REITs did the deals.

Background

In a sale-leaseback transaction, a cannabis company sells its real estate to a REIT and then immediately leases back the property at an agreed-upon rate. This provides immediate funding to the cannabis company that would otherwise be difficult to obtain.

Not all REITs choose to share their deal data. Similarly, private companies are under no obligation to share details. Our information is sourced from deal announcements, SEC filings, and advisor tombstones. We gathered data on 119 deals involving 195 licenses, 62 companies, and 9 REITs.

The graph below shows deals back to Q1 2019. It is readily apparent that the number of deals has dropped:

Companies

The top of the leaderboard is filled with large, mostly public MSOs. Here are the top 10 companies based on the number of REIT deals:

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And here is the leaderboard by total value of their REIT deals and average rent:

REITs

We have been able to find deals from nine REITs. Innovative Industrial Properties is the leader by far:

States

Colorado, Massachusetts, and Pennsylvania had the most licenses go through the REIT process. This table shows the number of licenses that are covered by a REIT. For example, there are 56 Colorado licenses that have been involved in a REIT transaction.

Key Figures

The price per square foot was all over the map, so to speak. Taking out the highest and lowest values from the sample, we saw a deal in Oklahoma at $18.79 per square foot as well as a few north of $600 per square foot. The average rent for the top 10 companies ranged from $192 to $399 per square foot. The average deal term is 20 years.

Conclusion

Cannabis operators have to deal with some of the most challenging business rules for any industry. They are burdened by limited banking, 280E tax penalties, and a rule set that forces them to build a supply chain in every state they do business in. 

As a result it is no surprise that they have used all the assets at their disposal. Freeing up the value in their real estate to obtain working capital makes sense – just like not paying taxes to the IRS because the 6% penalty is cheaper than other available sources of financing.

Author

Ed Keating is a co-founder of Cannabiz Media and oversees the company’s data research and government relations efforts. He has spent his career working with and advising information companies in the compliance space. Ed has managed product, marketing, and sales while overseeing complex multi-jurisdictional product lines in the securities, corporate, UCC, safety, environmental, and human resource markets.  

At Cannabiz Media, Ed enjoys the challenge of working with regulators across the globe as he and his team gather corporate, financial, and license information to track the people, products, and businesses in the cannabis economy.  

Ed graduated from Hamilton College and received his MBA from the Kellogg School at Northwestern University.

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