Connect with us

Hi, what are you looking for?

Business

Obstacles to a Cannabis Real Estate Investment Trust

Real Estate Investment Trusts (REIT) are required by the IRS to pay out at least 90 percent of their incomes to investors who hold units, much like shareholders owning stock in a company. This tax obligation has warded off real estate investors such as Miami’s MJ Holdings from launching a cannabis REIT.

“It’s the inability to draw on conventional financing for leverage to increase returns that has prevented such a REIT from launching,” explained Adam Laufer, co-CEO of MJ Holdings, a public company. “We don’t want to have to distribute 90 percent of our revenue under IRS rules. We’d rather retain earnings to grow the business in different verticals.”

REITs are a collection of properties and mortgages offered as a unit investment trust, representing a fraction of ownership.

“The challenge would be putting a team together that has real estate experience, including former REIT operators who know the complexities of the cannabis real estate market, in order to structure the REIT vehicle in a way that secures the most benefit for shareholders,” said Leslie Bocskor, managing partner with Electrum Partners. “To do it right would require a significant time and monetary investment.”

“A marijuana-related REIT will come together as more real estate experts enter the playing field,” said Scott Greiper, CEO with Viridian Capital & Research in Manhattan. “But the amount of capital required to build out a REIT has yet to come to market.”

That’s because marijuana is still classified a Schedule I drug under the Controlled Substances Act (CSA).

“When grow facilities are in a zone for marijuana, it costs triple the price,” Greiper continued. “But larger investors that have the amount of capital to build out these facilities are still concerned about federal illegality.”

While federal law prohibiting the distribution and use of marijuana is not a barrier in and of itself to establishing a marijuana-related Real Estate Investment Trust (REIT), various state laws could be.

“Investment properties would obviously only be in states where marijuana is legal in some way or another,” Laufer told High Times. “The more states you are operating in, the more opportunities there are to acquire properties for quality tenants.”

Properties that a reefer REIT might invest in include warehouses for cultivation, retail locations for dispensaries and new construction for greenhouses.

Until a proper REIT is launched, firms like MJ Holdings are paying investors a 10 percent return on investment capital outside of a REIT structure. “We raise capital through the issuance of promissory notes, which are secured by the property we are purchasing; we then lease those properties to licensed marijuana operators and use the monthly rent payments to service the interest on the notes,” Laufer said. “What we earn at MJ Holdings is the spread between the lease payments and the interest we pay to our note holders.”

It’s the REIT structure itself that poses a problem for some investors. “The lack of flexibility in a REIT was concerning to us,” said Jack Schrader, co-founder of Articulated Investors, which is leasing a $600,000 warehouse in Rifle, CO to the L.E.A.F. Aspen dispensary. “We decided to sacrifice the REIT’s tax advantage because we didn’t want to be bound by the prescriptions of being a REIT. We felt an LLC was a better structure for us for the flexibility it affords.”

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Advertisement

HT Newsletter

Subscribe for exclusive access to deals, free giveaways and more!

Thank you for subscribing.

Something went wrong.

Advertisement

You May Also Like

Women

For International Women’s Day, they open up about the unique challenges they face in the industry.

Business

A federal watchdog has has identified as many as 146 cases in which the Internal Revenue Service (IRS) targeted liberal-leaning groups, including non-profits working...

Business

The 4th Annual Cannabis World Congress & Business Expo in Los Angeles kicks off this week. The three-day event runs from September 13 through...

Business

According to several sources in the Colorado cannabis industry, the Internal Revenue Service (IRS) has been trying to prove that marijuana businesses have been...

Business

On a recent evening at the Cannabis Feminist Circle in Marina del Rey, a group of about 15 women, mostly in their late 20s and...

Laws

An investigation by the U.S. Treasury Department‘s Inspector General for Tax Administration, launched under pressure of litigation brought by the libertarian-leaning Institute for Justice, maddeningly finds that the Internal Revenue...

News

When estimating the size of the marijuana industry and its stupendous growth, it’s always a measure of billions—as in how many billions of dollars...

Women

Ah Warner, founder and CEO of Cannabis Basics, made history this year. For the first time ever, the United States Patent Trade Office (USPTO)...

Do NOT follow this link or you will be banned from the site!