A lot of green: Cannabis investment firm Inception launches industry REIT
The Beverly Hills firm looks to get in on both debt and equity plays in the space
A cannabis startup firm is looking to corral a lot of green to house the growing industry.
Beverly Hills-based Inception Companies is launching a $50 million real estate investment trust to provide companies in the industry with real estate financing.
Weed firms typically have to buy real estate with cash, because they can’t get financing from institutional lenders. Inception looks to buy and lease back those properties to tenants to free up their capital for other uses.
Inception’s move is a response to the patchwork investment landscape for cannabis, said Richard Acosta, the CEO of the REIT.
Cannabis is legal in differing ways in some states but still illegal on the federal level. Many traditional lenders have been hesitant to get involved with an industry that’s semi-legal.
“It’s wide open,” Acosta said. “Today we see a capital void in the industry that has typically been financed by entrepreneur savings, friends and family financing, and more recently you’re seeing venture capital.”
Even with money in hand, companies in the industry can have a hard time finding any space to rent or buy. Many municipalities restrict where industry companies can operate, which limits the supply of available space.
Some agents have caught on. For example, in marketing materials earlier this year, Cushman & Wakefield highlighted the location of a Downtown Los Angeles commercial building as being in a “Marijuana cultivation and manufacturing zone.”
Landlords’ real and perceived risks of renting to cannabis industry tenants means they often pay a premium of up to 25 percent more for space versus other tenants.
Inception will focus on specialized commercial and industrial spaces in markets with developed regulations, starting in California. It plans to get in at all levels of the industry, including cultivation, manufacturing, distribution, and retail.
Inception’s I-REIT will be involved in both debt and equity. On the debt side, it looks to originate senior mortgages for firms leasing space. On the equity side, it looks to invest in properties via leasebacks with industry tenants.
The firm plans to begin accepting investments in the coming weeks, and is actively courting investors. Institutional investors regulated by the federal government can’t officially invest, but Acosta said the REIT has interest from “quasi-institutional capital sources,” including investment groups within large institutions.
California voters legalized cannabis for medical uses in 1996 and legalized recreational cannabis in 2016 with the passage of Proposition 64.