Cannabis Real Estate Investment Trusts (REIT)

Cannabis Real Estate Investment Trusts (REIT)

A real estate investment trust (REIT) is a company that owns – and often operates – one or more properties that generate income. Cannabis real estate investment trusts are a sub-type of REITs that focus on the properties that businesses in the cannabis and hemp industry need.

Cannabis real estate investment trusts come with several benefits that help make them profitable. Before anyone gets invests in a cannabis REIT, it makes sense to learn about the options, opportunities, and competitors.

Types of Cannabis Real Estate Investment Trusts

Like other REITs, cannabis real estate investment trusts typically fall into three categories:

  • Equity
  • Mortgage
  • Hybrid

Equity Cannabis REIT

Most REITs operate as equity REITs, providing investors with the opportunity to invest in portfolios of income-producing real estate. With an cannabis equity REIT, one or more investors own property, such as farmland, storefronts, and warehouses. They have a few ways to make money from these options.

Mortgage Cannabis REIT

Mortgage cannabis REITs act more like lenders than property owners. When someone invests in a mortgage cannabis REIT, they profit when their company lends money to business operators to purchase real estate.

Hybrid Cannabis REIT

A cannabis REIT doesn’t have to fit into one of the above categories. A hybrid cannabis REIT makes money from owning property and from lending money to businesses that don’t want to lease property. That way, the investor can profit even when someone uses property their REIT doesn’t own.

Opportunities for Cannabis REITs

REITs have some shared benefits, no matter what sector the company focuses on. One of the biggest advantages is that several investors can combine their money to purchase real estate. Individually, these people might not have enough capital to buy the property. Together, they can buy that real estate without borrowing money.

Borrowing and lending money has always been challenging in the legal cannabis industry. State-level regulations put a lot of pressure on cannabis and hemp businesses. Regardless, the federal government still sees cannabis as an illegal product. Until the federal government changes its laws, most financial institutions will avoid the legal cannabis industry. That means business owners need to find alternatives to traditional banks and credit unions.

Cannabis REITs Can Fill the Lending Gap

Since cannabis entrepreneurs cannot rely on typical financial institutions to fund their ideas, cannabis REITs have an opportunity to fill the lending gap. When someone wants to borrow money to lease a dispensary, a cannabis REIT can step in to provide the capital. If the cannabis REIT owns the property, it and the business owner can find creative ways to reach their financial goals without involving federal law more than necessary.

Cannabis REITs Control a Large Portion of the Market

Cannabis businesses – whether they grow plants, manufacture products, or sell to consumers – can only operate in “green zones.” Operating in a state with cannabis-friendly laws does not mean businesses can open anywhere they want. They have to get licensed and follow a lot of regulations.

In some cases, communities and cities only let cannabis and hemp companies operate within specific areas.

Since the investors involved in cannabis REITs pool their money, they can purchase a lot of property in green zones. In fact, they could purchase so much property that they practically control a green zone’s retail spaces. (This doesn’t happen as often with farmland and warehouses because there is so much property left to buy.)

When a cannabis REIT controls much of the legal cannabis real estate, dispensaries must work with them before they can sell products to consumers.

Today’s Top Cannabis REITs

Several cannabis REITs have already invested significant amounts of money in green zone properties. Some of the biggest cannabis REITs operating today include:

  • AFC Gamma
  • Freehold Properties, Inc
  • GreenAcreage Real Estate Corp
  • Inception REIT
  • NewLake Capital Partners
  • Power REIT
  • Treehouse Real Estate Investment Trust

Most of these companies are privately owned. Some are publicly traded. Power REIT, for example, is a publicly traded company with shares available on the New York Stock Exchange. Anyone with enough money can purchase a share in public companies. Investing in a public cannabis REIT, however, often takes more research, money, and relationships.

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June 18, 2021Comments Off

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