Cannabis Sector Leaders Leveraging Expertise and Real Estate as Possible Federal Legalization Looms

Written By: Jen Neville
November 27, 2018

Federal Legalization

cannaeastNow in its 5th chapter, Infocast’s respected Canna EAST/WEST Series comes to New York City. As before, top state regulators compare notes both with each other, and with leading operators, testing labs, regional advocacy groups, standards-setting bodies and experts. Past Summits have featured dozens of senior regulators from many different states & major counties and cities.

In addition to this audience, which cannot be found at any other expo or operator-centric event, this East Coast iteration will include a mini-exhibits area of regulatory and compliance consultants, analytics, testing, lab proficiency and certification providers, GMP consultants, and extraction, packaging and labelling solutions, which will complement the highly focused program. Learn more here.


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The pendulum of cannabis legalization in the US seems to have begun to swing back towards a positive stance over the first half of 2018. Legalization supporters have witnessed a massive shift from January's hard stance by US Attorney General Jeff Sessions against State's rights, now to more recent speculation that congress may be now finally primed for legalization.

With the rise of cannabis legalization across North America, the rise in niche expertise in the sector has also flourished. Experts are needed across the board, from cultivation experience, to safely steering companies through the remaining legal mine fields. As consultancies and forums continue to pop up across the continent, the industry as a whole is maturing and refining itself at a rapid rate.

While the sector includes behemoths like Canopy Growth, that can partner with or acquire pretty much any smaller player it sets their eyes on, other options for the emerging players are becoming available. New and more established companies are offering services, from financial, to growing space, to retail and trademarking expertise to this rapidly expanding market.

Canopy itself has a strategic partnership with private company Canopy Rivers, which has a lot of the same faces on its roster, but ultimately has a slightly different approach. Canopy Rivers is designed to pursue opportunities, through amassing a portfolio of cannabis industry investments, like licensed producers, late stage applicants, pharmaceutical formulators, branded developers & distributors, and technology & media platforms.

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However, another platform is also emerging, that's much like the real estate income trust (REIT). In fact, Innovative Industrial Properties is officially listed as a REIT, and already paid out five rounds of dividends to its investors. Junior company CROP Infrastructure Corp. is also real estate focused, and asset backed, as it's aggressively building an empire of greenhouse spaces across multiple states, and has signed on an impressive slate of tenants for its facilities, equipment, and management expertise.

The cannabis sector is constantly evolving, as the industry as steadily improves, and weeds out the playing field. Through the business cooperation of experts within knowledgeable corporations with the up-and-comers, there's plenty of growth to be spread around.

WHERE THE CANNABIS SECTOR IS HEADED

According to Arcview Market Research and its research partner BDS Analytics, much progress is to be expected around the globe in the legal cannabis market over the next ten years. Spending on legal cannabis worldwide will hit $57 billion by 2027. Much of the growth is being credited to the expanding map of regions allowing for recreational use, and not just being restricted to medical cannabis. However, not every state has the openness for consumers to partake in the recreational market, yet. In the meantime, as each new market is added to the map, the experts in the sector will already have the experience to share, and the capital to help build out these jurisdictions.

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CANNABIS SECTOR REAL ESTATE LEADERS

Canopy Growth Corporation

Canopy Growth has emerged as a leader in the cannabis space with global operations through its subsidiaries producing and selling medical marijuana products in Canada. Canopy Growth recently signed a multi-year agreement with Neptune Wellness Solutions for an increase of capacity for Canopy's extraction, refinement, and extract product formulation capacity. Canopy also works collaboratively with Canopy Rivers, an investment and operating platform structured to pursue opportunities in the emerging global cannabis sector, including licensed producers, late-stage applicants, pharmaceutical formulators, branded developers and distributors, and technology and media platforms.

MariMed Inc.

MariMed provides consulting services for the design, development, operation, funding, and optimization of medical cannabis cultivation, production, and dispensary facilities. As of December 31, 2017, it developed and managed six operating cannabis facilities for clients in Delaware, Illinois, Nevada, and Maryland. They also develop and manage facilities for the cultivation, production, and dispensing of legal cannabis and cannabis-infused products under the Kalm Fusion brand name. Innovative Industrial PropertiesMaryland-based Innovative Industrial Properties is the first REIT corporation focused on the cannabis sector. The company recently announced its fifth consecutive quarterly dividend payable to common stockholders since its IPO in December 2016. IIPR also recently closed out the month of May by announcing an expansion of its partnership with PharmaCann with an acquisition and long-term lease on a property in Massachusetts.

MedMen Enterprises Inc.

Cannabis distributors, MedMen only RTO'd at the end of May, with the expressed goal of becoming known as the Apple Store for pot. The RTO and listing, raised the company approximately US$110 million, through a private placement at an implied enterprise valuation of US$1.65 billion. The Culvert City company's approach is to give customers a "comfortable, informative and non-threatening environment." Recently MedMen opened a marijuana store on what GQ Magazine dubbed 'The Coolest Block in America'.

CROP Infrastructure Corp.

Through a deal with tenant grower "HEMPIRE COMPANY LLC", CROP received final approval to triple its growing space on its Humboldt Campus, located in Humboldt, California. The facility is already operational, with a 10,000 sq ft medicinal cannabis greenhouse facility. With the approval, HEMPIRE, through CROP's facility will soon have access to an additional 20,000 sq ft of recreational licensed canopy space. CROP also recently acquired US distribution and Italian territory rights to 50 cannabis wellness products, expanding its footprint into Europe.

CROP'S POPULAR GROWING SPACES

By combining cannabis cultivation expertise with a steady business model influenced by real estate income trusts, CROP Infrastructure Corp. has already gained popularity within the sector. Across its 12 greenhouses that are either already built, or planned and underway, CROP has already signed a full slate of tenants who eagerly await growing their wares under CROP's roof. CROP is currently serving tenants and clients by operating its facilities in Washington, and in California, where it recently tripled its growing space capacity.

Since cannabis was legalized in Washington State, where CROP already has two significant greenhouse projects, total sales have grown exponentially: $31 million in 2015, $323 million in 2016, and $696 million in 2017. Washington has roughly 1,284 producers/processors, and over 436 retailers. Consumer purchases hit $2.58 billion, driving up state revenue by an additional $709.6 million. In California, where CROP's has Humboldt Farms operation recently received approval to triple its size, the state had an estimated $1.5 billion in sales in 2015, $2.7 billion in 2016, and is forecast to hit approximately $5.1 billion in the first year since legalizing recreational use at the start of 2018.

CROP has been very clear that it plans an aggressive expansion in 2018. Demand is very high for what they're offering, having already lured a respectable client base into agreements involving land expansion, turnkey state-of-the-art greenhouse facilities, brand positioning opportunities, specialized equipment, and access to approved nutrients for select licensed producers in legal growing regions. The typical agreement for CROP with a tenant involves an injection of capital, and a 60% stake on all product until the initial loan is repaid. After repayment, CROP retains a 30% stake indefinitely. By using this model, CROP adds security to its earnings potential, along with management fees, branding and licensing. This model allows tenants and clients to focus on boosting their brands while CROP provides the needed expertise in whatever the client needs.

CROP has also acquired brands to license to its tenant growers, while also securing deals for their tenants to provide ingredients for other established brands and products. CROP is becoming a popular one-stop-shop for entrepreneurs looking to make it big in the cannabis sector. [/read]


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