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The Real Deal Los Angeles

Riding high: MedMen weed dispensary spins off real estate for national expansion

LA-based MedMen sell its properties to Treehouse REIT for $100M amid recent success of marijuana farms
By Dennis Lynch | January 09, 2019 09:00AM

MedMen CEO Adam Bierman and the company’s store in LA (Credit: MedMen)

MedMen, the private equity-backed medical marijuana dispensary, is spinning off its real estate interests to fund a national expansion.

The Los Angeles-based company will sell its properties to Treehouse Real Estate Investment Trust for $100 million, MedMen announced this week.

Treehouse REIT, formed in collaboration with Venice-based investment firm Stable Road Capital, just completed a common stock offering and raised $133 million for the Medmen properties acquisition, along with other cannabis industry-related properties. The news was first reported in Los Angeles Business Journal.

Treehouse plans to make leaseback deals with MedMen for all classes of properties, including retail stores, and cultivation and production facilities.

Medmen will use that capital to fund an expansion nationwide. The company is active in California, Florida, New York, Arizona and Nevada. Treehouse will expand the lease-back model with other companies.

Some of the country’s best-performing REITs are the ones whose tenants specialize in marijuana farms. A recent report in Bloomberg found that Innovative Industrial Properties, which owns warehouses where farmers grow cannabis, netted investors a profit of 117 percent over the past year. That made it the most successful REIT at a time when many are struggling.

But there could be trouble on the horizon for MedMen. The founders of Beverly Hills-based Inception Companies, a company that launched a similar leaseback REIT this year that invested in MedMen, said Tuesday it would sue the company.

Inception Companies’ Brent Cox and Omar Mangalji say they own a “significant stake” in the company that manages MedMen and is accusing MedMen of “withholding its shares from its shareholders,” and using a “conflicted corporate structuring” to breach its fiduciary duties to its shareholders.

Inception Companies launched a $50 million fund in August to pursue leaseback deals. There’s plenty of opportunities within the industry — cannabis companies often have to buy their own real estate with cash because they can’t get financing from institutional lenders, which ties up capital and stifles growth.

Pelorus Equity Group of Newport Beach also sees an opportunity in the funding gap left by institutional lenders. Pelorus launched a $100 million fund to to help cannabis companies acquire properties.