The New Cannabis Business Model: Expanding Through Real Estate
Written By: Jen Neville
July 2, 2018
Cannabis kings are becoming real estate moguls; a surprising but calculated trend. Why? Despite mergers, acquisitions, and high valuations making the news on a near daily basis, the industry is still growing. Just as McDonald's became a global power in the fast food market by leasing land to all of their franchisees, leading cannabis players are making big moves through real estate investment. Big players in cannabis such as Canopy Growth Inc., Aphria Inc, Cannabis Wheaton and Choom Holdings Inc. are all actively branching out into property investment, catching onto a tactic Crop Infrastructure Corp. has been mastering quietly for a while.
In the US alone, cannabis is expected to become a multi-billion dollar a year industry, even without federal approval. In Canada, the federal government estimated that Canadians would spend $4.2 billion in 2018 alone. That's equivalent to roughly 0.2 percent of GDP on pot. For cannabis businesses, making big moves is essential to stay on top. It is no longer about having the largest greenhouses, nor is it about buying out the competition. The fierce competition has to foster innovative global business strategies that look beyond the bud.
Crop Infrastructure Corp. is one of a few global players in cannabis committing significant resources to the pursuit of land, lease, and other real estate opportunities. As the market continues to ramp up in the cannabis sector, land is going to become an ever more critical asset. Any companies without investment in land will soon find it difficult to maintain their footing.
The Green Rush of Acquiring Cannabis Acreage
Reducing risk in an inherently risky market like cannabis is an ongoing challenge for many in the sector. For cannabis corporations, real estate is a logical approach to reducing risk and securing long-term stability. One only has to look at Crop Infrastructure Corp. to see how in a very short few years, their real estate portfolio has exploded. Washington, Nevada, and California are all recent expansions or real estate acquisitions for the company. In California alone, Crop Infrastructure Corp. is expanding its 10,000 sqft. medical with a 20,000 sqft. Licensed recreational property. California's cannabis market has the potential to surpass the entire Canadian market occupied by big names such as Aphria. In Washington State, Crop Infrastructure Corp. is set to complete construction on its first Washington State project. This project, named The Dozen, spans 12 purpose built greenhouses, with approximately 44,000 sqft. of canopy space, and is projected to produce 24,000 pounds of cannabis annually.
They are also strategically staging themselves with a critical property footprint in Nevada state. With 300 acres of land and 300 acres of water rights in Las Vegas country, they are building the largest operation in the state, close to 2,000,000 sqft. of greenhouse space, with development beginning shortly.
The New Angle for Growth: A Real Estate Strategy
Cannabis is land hungry. The projections of the real estate required for the flourishing industry are staggering. Brokerage firm Jones Lang LaSalle Canada recently reported that by 2020, the top eight grossing companies in Canada are expected to eat up enough real estate to compete with Amazon Inc.'s Seattle headquarters. That's nearly eight million sqft. of cannabis canopy. Crop Infrastructure Corp. leases land and agricultural resources to cannabis growers in a market where rents have skyrocketed for marijuana friendly industrial spaces. These spaces are already few and far between. Many companies face astronomical rent increases after spending millions on renovations. Cannabis companies are a captive market which Crop Infrastructure Corp. is supplying to.
Banks are also still nervous about working with the industry. In the U.S. at least, federal banks still follow federal legislation. Cannabis companies already struggle to find investors for their business, and once they become profitable, also find it difficult to safely reinvest. Companies like Crop Infrastructure Corp. are taking this uncertainty to heart by following a secure alternative strategy of investing in cannabis infrastructures themselves. Buying real estate is about taking back control of their operations, and it's about minimizing the influence of outside risk factors. Investing these 'un-investable' cash assets back into real estate is a calculated way to avoid conventional banking altogether. It's a safety net not yet available to the cannabis industry. It makes much more sense for an owner to make significant investments in the property when they will control the property going forward. Crop Infrastructure Corp. has quietly followed this low-risk forward-looking approach while companies like Aphria and Canopy focused on short-term rental strategies. Owning, instead of renting, avoids an uncertain future.
Crop Infrastructure Corp: "We've Gone Global"
Buying up acreage and industrial space within the US is just one piece of a complicated puzzle. In such an overcrowded marketplace, cannabis companies need to strategize beyond the American investment tactics. This is why Crop Infrastructure Corp. has gone global.
The company just announced its definitive licensing agreement for US distribution rights and for the exclusive Italian rights to The Yield Growth Corp.'s proprietary cosmetic and therapeutic products that are formulated for infusion with cannabis. Under the terms of the agreement, Yield Growth will receive $1 million for the Italian license and distribution rights through the issuance of 2,500,000 units of Crop Infrastructure Corp. at a deemed price of $0.40 per unit.
Penny Green, President and CEO of Yield Growth said: "CROP is at the forefront of the burgeoning Cannabis industry as it now seeks to move beyond the State of Washington and California with this deal as its entry into the European cannabis market."
This acquisition will be complementary to Crop Infrastructure Corp.'s efforts of expanding operations to Europe, widening its global footprint, resources, and distribution channels one acreage at a time.
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