Actual property is without doubt one of the harder points of the cannabis trade. Securing a license is hard however getting your location is even harder. Every state has completely different rules and restrictions, which mixed with distinctive actual property markets makes discovering and securing property important. It’s an costly endeavor and one during which conventional mortgages aren’t usually an choice.
This presentation will deal with the New England and New York space cannabis actual property markets. It is going to cowl the next states: Maine, Vermont, New Hampshire, Connecticut, Massachusetts, New York, New Jersey, and Pennsylvania.
Most of the states which have gone absolutely authorized – which means legalized each medical use and adult-use cannabis typically have opt-out clauses for municipalities. Which means in some areas if a city or village decides towards permitting cannabis shops or amenities in its location, that places much more demand for places within the municipalities that approve cannabis companies.
Progress within the Northeast
The Northeast cannabis trade has been increasing at a blistering tempo. In 2018, there have been solely 187 dispensaries throughout 9 states. Quick ahead to March 2021 and also you see the quantity has jumped to 424. Of this 424, solely Massachusetts and Maine have adult-use merchandise for the sale, the remainder are totally medical marijuana. These numbers are anticipated to leap even larger as states like New Jersey and New York go absolutely authorized. “It performs out in usually New England methods – Maine has been actually pleasant, Portland was very aggressive,” mentioned MMLG Managing Director Brian Lauvray.
|Dispensary/Retailers 2018-YTD 2021|
|Copyright © 2021 by CNB Media LLC dba Cannabiz Media|
|Supply: Cannabiz Media License Database www.cannabiz.media|
One space in Massachusetts that noticed a dispensary increase is Nice Barrington. This beautiful city within the coronary heart of the Berkshire mountains is a middle for tourism. Snowboarding within the winter, plus mountain climbing, biking and tenting in the summertime. There’s a bustling summer time efficiency calendar as nicely that brings numerous child boomers as much as watch dance and theatre teams. It’s the right place to find a dispensary and the city initially opened its doorways.
That sparked a flood of dispensaries and now the city, regardless of having no cap on shops is saying they’ve sufficient, thanks. The inhabitants has lower than 7,000 folks however 5 dispensaries. Springfield in the midst of the state has attracted a number of shops after which Boston and its surrounding suburbs has quite a few dispensaries, however there are massive pockets of the state the place there are zero dispensaries. Principally because of the lack of a serious freeway or vacationer heart.
Capitalizing on the Asset
Hashish corporations proceed to battle with getting massive mortgages for buildings. They proceed to make use of the capital raised with a purpose to fund a retailer or facility buy. The later, the corporate can promote the property to a REIT or actual property funding belief after which lease it again. Revolutionary Industrial Properties or IIP is a well-liked REIT that has executed this so typically, that it’s the chief within the house.
Let’s have a look at Massachusetts once more. Virtually each massive participant within the house has bought a property to IIP. (The funding determine is in 1000’s and the info is from the IIP 2020 annual report.)
|Rentable Sq. Ft||Funding|
|PharmaCann MA||Massachusetts||Could 31, 2018||58,000||30,500|
|Holistic MA||Massachusetts||July 12, 2018||55,000||14,750|
|Trulieve MA||Massachusetts||July 26, 2019||150,000||43,500|
|Ascend MA||Massachusetts||April 2, 2020||199,000||33,775|
|Cresco MA||Massachusetts||June 30, 2020||118,000||8,904|
|4Front MA||Massachusetts||December 17, 2020||67,000||15,500|
In 2020, IIP closed on the acquisition of a property in Massachusetts, which was roughly 118,000 sq. toes of commercial house within the mixture. The acquisition value for the property was roughly $7.8 million (excluding transaction prices). IIP additionally entered right into a long-term, triple-net lease settlement for the property with a completely owned subsidiary of Cresco Labs Inc. (Cresco), which intends to function the property as a regulated cannabis cultivation, processing and meting out facility upon completion of redevelopment. Cresco is anticipated to finish further tenant enhancements for the property, for which IIP has agreed to supply reimbursement of as much as $21.0 million. Assuming full reimbursement for the tenant enhancements, IIP’s complete funding within the property can be roughly $28.8 million.(Knowledge from IIP’s annual 2020 report)
Going again a few years in 2018, closed on the acquisition of a property positioned at 96 Palmer Highway in Monson, Massachusetts, which includes roughly 55,000 sq. toes of commercial house located on roughly 5.4 acres. The acquisition value for the property was $12.75 million. Concurrent with the closing of the acquisition, the Firm entered right into a long-term, triple-net lease settlement with Holistic Industries, Inc. (“Holistic”), which intends to proceed to function the property as medical-use cannabis cultivation and processing facility in accordance with Massachusetts medical-use cannabis rules.
Newcomers – New Jersey & New York
Massachusetts appears like an old-timer in comparison with the soon-to-be absolutely authorized states of New Jersey & New York. Each markets are anticipated to be sizable and each are solely authorized for medical marijuana right now. Each have not too long ago determined to legalize adult-use cannabis and New Jersey may start gross sales in 2021, whereas New York will start gross sales on April 1 2022. Each states are additionally well-known for costly actual property.
Any new entrant to the market is greatest served by hiring a guide that is aware of the ins and outs of navigating the crimson tape that comes with cannabis. The competitors for licenses can be fierce. Brian Lauray from MMLG consultants mentioned, “New York & New Jersey can be a battle royale from an software standpoint. Borough commissioners and aldermen and who you realize.” Plus, each states enable municipalities to decide out of the cannabis trade. “In New Jersey, a number of fascinating municipalities have indicated they’re open for enterprise – like Jersey Metropolis,” mentioned Lauvray. “It’s a very fascinating market – everybody needs in. However there may be a variety of demand and never a variety of provide. It is going to come right down to the operators which have the cash and may tweak many levers”
IIP has additionally been busy within the New York market shopping for properties regardless of the comparatively small dimension of the variety of shops and amenities. New York is a restricted license state that solely gave 10 operators the chance to be within the trade. That can change with full legalization, however these 10 operators have all struggled with the medical-only nature of the state. It had a really restricted record of circumstances with a purpose to get the license and gross sales have been dismal versus the amount of cash invested. So it was no shock to see some corporations promoting off actual property to IIP with a purpose to get some money within the kitty.
IIP mentioned in a securities submitting that in December 2019, one in all its properties in New York accounted for six% of our internet actual property held for funding. In December 2020, the corporate mentioned it amended its lease and entered right into a improvement settlement with PharmaCann at one in all our New York properties, making accessible $31.0 million in building funding on the property. “Assuming full fee of the development funding, our complete funding within the property can be $61.0 million. As of December 31, 2020, we incurred roughly $70,000 of the development prices, of which none was funded.”
|Rentable Sq. Ft||Funding|
|Curaleaf NJ||New Jersey||July 13, 2020||111,000||18,940|
|Columbia Care NJ Portfolio||New Jersey||July 16, 2020||54,000||13,033|
|PharmaCann NY||New York||December 19, 2016||127,000||30,000|
|Vireo NY||New York||October 23, 2017||40,000||6,717|
In New Jersey, the Columbia Care parcel is definitely two properties and IIP mentioned that Columbia Care was anticipated to redevelop one of many properties and IIP would reimburse them $1.6 million. Curaleaf was redeveloping its constructing with a reimbursement of as much as $29.5. IIP mentioned $20 million was spent on redevelopment prices and IIP funded $13.4 million of that. Each New Jersey and New York give cannabis corporations the perfect of each worlds. Every state has city dense inhabitants places after which long-term agricultural areas. In upstate New York, a lot of this agricultural land is economically depressed as nicely and welcomes large-scale develop amenities regardless of the scent and lightweight air pollution.
Pennsylvania is a medical-only state right now, though there appears to be unimaginable stress on the state to go absolutely authorized as its neighbors New York and New Jersey. Within the final 12 months, Pennsylvania medical cannabis gross sales totaled $910 million. Medical cannabis gross sales have grown steadily previously 13 months, beginning at $40M in January 2020 and ending at near $98M in January 2021. The state’s shops have grown from 47 in 2018 to 110 in 2021 for only a medical market. The scale of the areas is rising as nicely. Whereas Canadian corporations could have overbuilt amenities, Pennsylvania operators are clamoring for extra. In December Ayr Methods closed on the acquisition of CannTech PA for $57 million. This acquisition included a 143,000 sq. ft. cultivation and processing facility on 13 acres.
|Rentable Sq. Ft||Funding|
|Jushi PA||Pennsylvania||April 6, 2018||89,000||13,381|
|Maitri PA||Pennsylvania||April 24, 2019||51,000||21,402|
|Inexperienced Leaf PA||Pennsylvania||Could 20, 2019||266,000||13,592|
|PharmaCann PA||Pennsylvania||August 9, 2019||54,000||25,730|
|GTI PA||Pennsylvania||November 12, 2019||148,000||39,600|
|Curaleaf PA||Pennsylvania||December 20, 2019||72,000||25,749|
|Holistic PA||Pennsylvania||June 10, 2020||108,000||15,007|
Parallel is working to arrange a 120,000-square-foot develop facility in an area owned by The Buncher Co. within the Chateau neighborhood of the North Facet, working in partnership with the College of Pittsburgh via its enterprise known as Goodblends PA. The corporate mentioned that the enterprise wanted an enormous constructing for a variety of makes use of that can embody rising and processing medical cannabis merchandise, conducting analysis, coaching staff in addition to assembly primary distribution and warehousing calls for. A totally authorized state may see a further increase in actual property. Presently, Pennsylvania is IIP’s second-largest marketplace for a property with rents accounting for 15.7% of rental income. Seven properties with 788,000 rentable sq. toes usher in $18.3 million a yr (as of December 2020).
An instance of the impact on a totally authorized state may be seen within the latest improve in shops in Maine, which jumped from 8 in 2019 to 23 in 2021. Propco., a subsidiary of New York-based actual property funding belief Energy REIT acquired a three-acre property in York County, Maine. The gross sales value was $400,000. That property at present homes an under-construction, 32,800-square-foot cannabis cultivation facility. It additionally has a 2,800 sq. foot processing/distribution constructing with building not too long ago accomplished. PropCo. Stated it should fund the development of a further 9,900 sq. toes of processing house and the renovation of an present 2,738 sq. foot constructing on the not too long ago acquired property. The completion of building on the brand new property is focused for Summer time 2021.
The mixed properties are anticipated to be one of many largest cannabis greenhouse cultivation and processing/distribution properties within the state of Maine upon completion. David Lesser, Energy REIT’s Chairman and CEO mentioned that it’s not straightforward to lift capital for large-size amenities regardless of all of the discuss. He additionally famous this his REIT is targeted on greenhouse cultivation amenities.
CT, NH, RI
The remaining states are comparatively smaller components of the actual property story within the Northeast. Connecticut has 4 producers that account for 18 dispensaries and amenities. Vermont has seven, New Hampshire has 5 and Rhode Island has three. This week a invoice to legalize marijuana in Connecticut was accredited by a key committee on Tuesday—however it “stays a piece in progress,” the chairman mentioned. The laws is alleged to be backed by the governor and features a collection of latest social fairness provisions. Per week in the past, Marijuana Second reported a pair of Rhode Island Senate committees held a joint listening to on two marijuana legalization proposals—together with one proposed by the governor—in addition to a number of payments to reform the state’s present medical cannabis program. In late 2020, Vermont’s governor allowed a legalization legislation to take impact with out his signature. Nevertheless, it could be a while earlier than precise authorized gross sales can start as selections round licensing have but to be determined.
Finally, the actual property aspect of cannabis appears to be a strong selection. Lesser mentioned that to this point in cannabis if tenants have bother making the lease, it typically will get labored out. Both new traders are available in or the corporate is acquired, however the state of affairs is often resolved. IIP has famous that its rents are on time as nicely. In October 2019, a court-appointed a receiver of the tenant at its Los Angeles, California property. That tenant subsequently defaulted on its lease funds to us for all of 2020. It had been leased to Vertical in southern California, during which Vertical made partial funds of contractual lease due.
The acquisition value for the southern California portfolio was roughly $17.3 million. Then Holistic the cannabis operations from the tenant, which had been in receivership. Holistic closed on this transaction after which rapidly executed a long-term, triple-net lease with IIP for the complete property. Assuming full reimbursement for the redevelopment of the property, IIP’s complete funding within the property can be $24.0 million. The corporate did say that for some or all of 2021, it anticipated that a lot of its tenants would proceed to incur losses as their bills improve in reference to the growth of their operations and that they’ve made and can proceed to make lease funds to us from proceeds from the sale of the relevant property or money readily available, and never funds from operations.IIP says it has not supplied deferrals of any lease obligations to any tenant since July 1, 2020.
The New England market holds a substantial amount of promise for the cannabis trade. The pandemic has triggered an enormous disruption in conventional retail for a lot of of those economies. Lockdowns triggered a spike in on-line purchasing inflicting many brick & mortar retailers to shut up, presenting alternatives for dispensaries. Whereas rural land values have risen as distant working created a chance for city dwellers to relocate to extra rural settings. As soon as depressed cities have seen new life, so the times of low-cost massive acreage in distant places have declined. It’s nonetheless comparatively early on this cycle for cannabis industries and the image is certain to vary as guidelines rules get determined after which maybe tweaked once more.
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