Pelorus Significantly Reduces the Cost of Capital for Cannabis-Related Businesses, Uplifting the Industry and Allowing Entrepreneurs To Thrive

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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.

Federal regulations coupled with the U.S. government’s reluctance to decriminalize the cannabis industry nationwide have put many cannabis operations in peril, rendering them unable to qualify for conventional loans. To help combat this issue, lenders like the Pelorus Equity Group, a leading provider of value-add bridge commercial real estate loans to businesses operating cannabis-use properties, have stepped in to provide these businesses with the funding they need to succeed. One thing sets Pelorus apart from its peers: The company is actually lowering the cost of capital across the cannabis industry.

Because of the federal illegality of cannabis and the antiquated stigma that still exists around the plant, major banks and lenders have generally refused to work with cannabis companies. Most private lenders in the space have charged prohibitively high interest rates and have limited caps on the amount of money they can loan. In 2020, the average interest rates were 16% to 21%, and some interest rates ran north of 25%.

Most lenders also take a long time – often months – to actually process loan requests and reimburse borrowers for construction draws. Not only do these things stifle growth for cannabis operators, they essentially bar entrepreneurs who haven’t already amassed considerable wealth from entering the industry, perpetuating the ongoing social equity problem in cannabis. 

For cannabis companies that can and do opt to pay the high interest rates, the caps on the amount of money they can borrow at one time — typically only up to $3 million — often means they can’t finance the completion of a building project on one loan and need to look for other financing streams, which delays construction and revenue.

As the cannabis industry is expanding rapidly, with new medical markets opening up and many of the existing medical markets transitioning to adult use, the difficulty for entrepreneurs and cannabis operators to accumulate capital is creating a bottleneck with supply running short of demand. 

Fortunately, Pelorus is making considerable strides in driving down the costs of capital for cannabis operators, which benefits the industry as a whole. The company is helping to stabilize the cannabis supply chain — enabling supply to catch up with demand — as operators can build and complete cultivation, manufacturing and retail facilities in a more timely manner. More entrepreneurs can enter the industry, and existing businesses will be able to grow their operations and thrive. With more accessible interest rates and infrastructure growth, cannabis business owners can pass the savings onto consumers and charge less for products. 

Recently, Pelorus took three major steps, featuring a number of industry firsts, to help achieve its goal of making capital more accessible to cannabis companies.

In late September, Pelorus announced its closure of a private placement of $42.3 million senior unsecured notes with a 7% fixed coupon rate through its Pelorus Fund, becoming the first cannabis debt firm to close on a bond of this scale. Pelorus intends to use the proceeds from this offering to introduce a new lower-cost stabilized lending program to current borrowers upon completion of construction and to new borrowers that meet the company’s underwriting criteria. This offering came alongside a BBB+ rating from Egan-Jones Ratings Co., another first for a privately held cannabis investment company. 

Then, in mid-October, Pelorus announced it secured a line of credit for up to $20 million with an Federal Deposit Insurance Corp. (FDIC)–insured bank at 4.75% interest. This line of credit is the first of its kind in the cannabis industry, as it’s the lowest available real estate lending rate secured by the fund’s portfolio of notes. This will substantially increase Pelorus’s funding capacity for facility improvements, buildouts and expansion loans in the cannabis sector. The ability to have an additional $20 million provides more liquidity if necessary.

Pelorus expedites fully documented draw requests in as little 1-3 business days for its clients. This allows cannabis companies to quickly build or expand their infrastructure and start generating more revenue.

The third and most recent component of Pelorus’s plan was upsizing its fund to $1 billion. This dramatic four-fold increase, up from $250 million, follows Pelorus’s 300% growth over the course of 2021. More owners and operators are looking to Pelorus for quick funding at low rates, and Pelorus can answer the demand. Pelorus has completed 59 commercial real estate transactions — the most in the industry — and the capital it’s deployed to businesses and real estate owners translates to 1.85 million square feet in eight states.

“Pelorus is currently the nation's largest value-add lender for cannabis-use properties, and it’s continuing to grow,” said Rob Sechrist, president of Pelorus Equity Group. “Based on our current acceleration, we’re on track to be the first privately held fund with $1 billion assets under management."

Looking at the big picture, Pelorus is positioning itself to be the most effective lender in the booming cannabis industry, delivering capital to business owners quickly and at the lowest costs. Together with a BBB+ rating and FDIC–insured bank line of credit, which grant security that no other privately held value-add alternative lending source can offer, Pelorus is crossing multiple hurdles and is poised to lead the charge in transforming the industry’s access to capital. Pelorus has effectively raised the threshold for what lenders can do, which will send ripples throughout the industry and benefit businesses and consumers alike.

For more information, visit https://www.pelorusequitygroup.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.