How Real Estate Investors Are Helping The Cannabis Industry Grow
The marijuana industry in America is vast and constantly growing. Economies tend to thrive when the herb is sold and distributed in legal settings, however, many states have tight regulations on this retail industry because of how new it is, and due to the fact that federally, marijuana is still an illegal drug. This makes the industry extremely hard to keep up with, as it’s forever changing. According to Crain’s Business Magazine, cannabis stocks are down 60% compared to where they were this past March, which was considered a peak period for this industry. In response, companies are selling real-estate as a means to keep up with costs and make up for other areas where finances are lacking.
“We’ve done $375.6 million worth of deals in 2019 and the pace has picked up over the course of the year. It’s becoming more and more attractive for operators because of the scarcity of alternatives out there. Our pipeline has never been more vigorous than it is today,” said Paul Smithers, CEO of Innovative Industrial Properties Inc., the largest cannabis-focused real estate investment trust.
The struggle that comes from living in a legal state in a country where the product is federally illegal, is finding the right real estate to run a cannabis business. Many landlords don’t want to rent out spaces to new marijuana businesses because of how up and down the economy for it is. However, the absence of willing landlords is only further contributing to the declining cannabis market. To avoid this struggle, many companies in the industry are just buying property to own and using their assets to gain further capital, (Crain’s).
Development in the marijuana industry has definitely slowed down within the past year. According to Capital Advisers, this time last year the industry acquired $707.8 million in equity and debts. This year, that number decreased to a whopping $26.8 million, for Real Estate Investment Trusts, this isn’t a bad thing, however. Innovative Industrial properties Inc. (IIPI) owns a total of 38 cannabis business properties, which brings their personal stock up, and grabs the attention of big investors. When these investors invest in these real estate companies, they’re indirectly reinvesting into the cannabis business, so the acquisition of more real estate, leads to more capital and equity for the marijuana businesses.
“When we talk to investors, they get comfort that we are a real estate company foremost. We’re not unlike a utility. We’re the picks and shovels, if you will,” said Smithers.
Additionally, IIPI is able to keep themselves as a real estate business afloat when investing in marijuana properties by buying out the spaces and renting them out to other marijuana companies in long-term contracts. This ensures that IIPI doesn’t lose money on their investment, can continue to gain additional investments, and give the space to a growing industry that will, hopefully, bring in a significant amount of income. The additional investments also work in favor of the cannabis industry, as it lets companies like IIPI acquire even more space to continue to lease out to more cannabis companies.
While it may be difficult for cannabis businesses to find private landlords to rent from, larger real estate companies are investing and doing their part to give this new and exciting industry a space to thrive. It can be argued that even now, after marijuana has been legal in some states for over five years, these real estate investors are ahead of the curve when it comes to putting money into this industry. Eventually, marijuana will be legalized federally, it’s just a matter of time, and government, but when that day arrives, companies like IIPI will already be in the game and thriving to capitalize off newer growth in the market.
Eric Mastrota is a Contributing Editor at The National Digest based in New York. A graduate of SUNY New Paltz, he reports on world news, culture, and lifestyle. You can reach him at eric.mastrota@thenationaldigest.com.