Investment Firm Launches Cannabis REIT, Aims To Solve Capital Dilemma -Morningstar
The Inception Companies, the private investment firm behind Medmen Enterprises Inc (CNSX: MMEN) (OTC: MMNFF) and several other cannabis ventures, announced the launch of the Inception REIT (I-REIT) to provide the cannabis industry with real estate debt and equity capital solutions.
REITs, or real estate investment trusts, are companies that own or finance income-producing real estate.
I-REIT offers medicinal and adult-use cannabis businesses senior debt originations, capital improvement financings and sale-leasebacks, essentially providing access to capital and enabling redeployment into business activities without diluting equity.
Real estate is the "lifeblood" of the cannabis sector, and a key barrier for scaling brands and operating businesses, I-REIT CEO Richard Acosta told Benzinga.
"Due to current federal cannabis laws, many operators have acquired their real estate assets with cash and have significant capital locked up in those investments. We see this as a huge opportunity, not just to unlock these funds for growing their core businesses in an ultracompetitive industry, but also for individual investors who want to participate in the space without ‘touching the plant.’”
For investors, I-REIT generates "tax-advantageous dividends," with potential cash flow yields of more than 12 percent and returns that could be two to three high times higher than traditional real estate, according to The Inception Companies. It focuses exclusively on real estate-backed financing opportunities with state-licensed U.S. cannabis companies in progressive jurisdictions.
Why It’s Important
The Inception Companies intends to capitalize on a present dearth of capital resources and financing options for the real estate-intensive cannabis industry.
Traditional banks are unwilling to lend to state-licensed cannabis companies lest they become implicated in violations of federal law. Other lenders charge rates too steep for fledgling firms. One of few options available to cannabis businesses is to sell equity to secure the capital to acquire or control their real estate.
I-REIT aims to solve the capital dilemma while providing U.S. investors a still-rare opportunity to invest in the cannabis industry.
“Additionally, financing challenges combined with the complexity of local zoning and land use regulations have created significant lease and trading premiums for the limited supply of cannabis real estate assets,” according to The Inception Companies.
Innovative Industrial Properties Inc (NYSE: IIPR) was the first REIT focused on the medicinal cannabis industry to hit the public markets in December 2016.
Inception REIT intends to raise up to $50 million from institutional and individual accredited investors. It will launch on an exemption from Securities Act registration requirements.
Many investors want to participate in the high-growth cannabis industry but have been reluctant to do so in light of federal marijuana laws, said Inception Companies co-founder Omar Mangalji.
"We’ve launched I-REIT to support entrepreneurs by solving industry-specific financing issues, while bringing investors an asset-based opportunity rather than a directly plant-touching one," Mangalji said. "This platform is managed by expert real estate and cannabis investment teams with a track record of success in the space; we see this as a win-win scenario for everyone."
Javier Hasse contributed reporting.
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