Good News for Cannabis Operators Seeking Capital
While the cannabis industry has seen its fair share of ups and downs, the industry continues to be an exciting space for consumers, players in the industry and the country as a whole. Because cannabis is still illegal at the federal level, and traditional banking products and services are unavailable to cannabis operators, they are left to navigate the capital markets in a different way.
The three options for a cannabis operator to obtain capital is through debt, company equity, and real estate. This isn’t all that different from any other company, but the scarcity of capital and unfavorable terms makes it much different. While large publicly traded MSO’s have access to large debt facilities through institutional investors, most cannabis operators don’t have that ability.
As Richard Acosta, CEO of Subversive REIT (in partnership with Subversive Capital and Inception REIT) recently said in an ISCS interview regarding COVID-19’s effect on the cannabis industry, “Capital markets have certainly dried up, so you will see some forced combination of M&A as these companies fight for survival. What that means is that the companies left standing are going to be the stronger companies that are able to raise money as needed are going to be more resilient going forward.”
While that may seem like a grim reality for many cannabis operators, there is certainly hope. A sale-leaseback is a great option in obtaining capital for cannabis operators, and one that has been used by many of the largest companies in the space. A sale-leaseback is essentially what it sounds like. An operator sells their real estate to an investor and agrees to what’s typically a long-term lease on the same property, freeing up the operational capital while maintaining operations from the same facility. Not only is this a way to liquidate locked-up capital, there are numerous advantages to a sale-leaseback.
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