Sale/Lease Buyback Model - Why It's the Hottest Funding Method for Cannabis Properties Now and Why It May Soon Not Be So Hot…

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

The cannabis industry is faced with two main objectives: Finding the right product to competitively grow and then finding the right place to actually set up operations. Sale-leaseback options are a financing tool cannabis companies are increasingly using in their pursuit of non-traditional financing. These transactions are becoming a welcome solution for cannabis operators who don’t want to turn to equity financing to continue to fund their operations. 

“Cannabis operators have restricted financing options, which leads many to struggle with liquidity issues. In a sale-and-leaseback, commonly known as just a sale-leaseback or even just a leaseback, a cannabis operator sells their property (greenhouse, warehouse, dispensary, etc.) to a REIT (or investor) and then leases it back. This allows an operator the chance to get some fast cash without reducing their stock ownership interest” – 420Property.com

As an additional benefit, the purchaser is buying the property with a long-term tenant already in place, providing the buyer with the opportunity to generate cash flow immediately. The seller-tenant no longer has an ownership interest and forfeits the right to receive any appreciation of property value. The new property owner is protected because of its ability to renegotiate the lease or evict the tenant if the business is delinquent on rent. 

Here are some examples of recent sale-leasebacks in the cannabis space:

• Chicago-based Cresco Labs CRLBF made a $50 million sale-leaseback deal with GreenAcreage Real Estate, a REIT in New York providing sale-leaseback and construction financing to companies operating in the cannabis industry.
• New York-based multi-state operator (MSO) Columbia Care CCHWF raised $35 million by selling and leasing back six properties in Illinois, California, and Massachusetts. The properties were purchased by New Lake Capital Partners out of Maryland.
• Green Thumb Industries GTBIF, an MSO based in Chicago, made a $39.6 million sale-leaseback deal for a cultivation facility in Pennsylvania with San Diego-based Innovative Industrial Properties IIPR.
• New York-based MSO, Acreage Holdings ACRHF, signed a $72 million sale-leaseback deal for properties in Florida, Massachusetts, and Pennsylvania with the buyer GreenAcreage.

According to 420Property.com, the greatest assets for cannabis operators include:  

• With traditional bank financing out of the picture (for the time being), access to funding from venture capitalists, family offices and wealthy investors is limited in the space. A sale-leaseback offers cannabis businesses a viable funding option. 
• Sale-leaseback transactions are an ideal way to raise cash while retaining access to key properties.
• A sale-leaseback is a long-term lease agreement that locks in facility expenses.
• Selling real estate and leasing it back frees up stranded capital, which allows the company an opportunity to generate growth capital and the chance to reinvest in its core operations. Proceeds from a sale-leaseback transaction can be used to invest in different aspects of the company’s operation, including equipment and inventory purchases, expansion and new-hire training.  
• The transaction allows a seller to remain a tenant while transferring ownership of an asset to an investor. The purchaser is buying a property with a long-term tenant already in place, which generates cash flow immediately.

In the short term, 420 Property expects cannabis companies to increasingly use sale-leaseback transactions because of a lack of funding options available to them. 

However, as cannabis businesses become more and more accepted, it is likely traditional funding sources will eventually be available as the Safe Banking Act and federal cannabis legalization/ decriminalization have gained support from both Democratic and Republican lawmakers. Once banking and financial services become available, 420Property.com is forecasting that the popularity of the sales-leaseback model in the cannabis space will cool and multi-state operators will transition to ownership positions in their facilities.  

In the meantime, 420Property.com provides a platform where cannabis business owners and investors can search for properties for sale and lease as well as find existing cannabis businesses for sale right now. 

To see what’s available in your area, visit 420Property at 420Property.com. 

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.