Investing in medical cannabis facilities: A guide for real estate investors
Most investors are familiar with the traditional ways of investing in real estate. Experimental and Proper Asset Rates such as a rental office building or a multi-family unit have well-known risk and return profiles. This makes them easy-to-understand investment opportunities for novice investors.
However, there are many other ways to invest in real estate, including some risky options. One of the most unusual methods is medical cannabis facilities. Below is a look at this nascent asset class, which overlaps with real estate, industrial and agricultural real estate.
What are Cannabis Facilities for Medical Use?
Cannabis in medical use, or medical marijuana, was first legalized in California in 1996. Many other states have enacted it in the years since, with the count currently at 33 plus the District of Columbia. They have approved to treat a number of conditions, including cancer, epilepsy, Crohn's disease and PTSD.
The marijuana plant contains more than a hundred different chemicals known as cannabinoids, each with a different effect on the body. The most common for medical purposes are Delta-9-tetrahydrocannabinol (THC) and cannabidiol (CBD).
The medical marijuana industry needs these chemicals to produce drugs and other treatment options. This supply must come from state-authorized breeding facilities, which include most industrial and enclosed greenhouses, so they can safely grow the plants and extract the cannabinoids for medical use cannabis companies.
How to invest in cannabis facilities for medical use
There are two ways to invest in cannabis facilities for medical use:
Direct development or acquisition of an incubator and industrial processing facility.
Invest in a real estate investment trust (REIT) focused on owning these assets.
Direct investment in the development or purchase of a cannabis facility for medical use is more risky than other commercial real estate options. Prohibit the facility from producing marijuana for medical use.
Another real estate investor option is to buy a REIT focused on owning cannabis facilities for medical use. As of early March, the company had 53 properties in 15 countries, including those under development. She buys these assets from licensed growers and then leases them in a long-term triple net lease. The company also signs custom building agreements, where it develops facilities for licensed growers.
These agreements provide the company with increasing flows of cash flow that it uses to pay a dividend and purchase additional cannabis facilities for medical use. Industrial property innovation has grown tremendously in recent years. In 2019 - its third full year as a public company - Innovation expanded its portfolio from 11 properties in nine countries to 51 in 15 countries.
These new additions increased the adjusted funds from its operations (AFFO) per share by 144%, which helped support a 122% dividend increase over the past year. The quick dividend and dividend growth is why Industrial Property Innovation was one of last year's top performing REITs.
While industrial property innovation is the first and publicly traded REIT focused on medical use cannabis facilities, others may soon follow suit. Last year, for example, GreenAcreage Real Estate Corp. A private offering that raised $ 141 million. This non-trader REIT could eventually complete an initial public offering to raise more cash so you can continue a resale business and make custom deals with medical marijuana growers.
A fast growing real estate sector
As more states legalize marijuana for medical use, this will drive the need for additional breeding and processing facilities. These growers will need to expand capital, which they can achieve by completing resale and resale deals with custom real estate investors, including REITs like Innovation Industrial Properties. This growth makes it a compelling sector for real estate investors looking multi.
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