This is a copy of the January 13th edition of our weekly Newsletter, which we have been publishing since October 2015.
One of the big stories last year was the opening of the capital markets to U.S. cannabis operators, with several leading companies going public after raising hundreds of millions of dollars selling stock. Some of the newly public companies as well as those who went public earlier were able to raise additional capital in secondary offerings as well. This development had a big impact across the industry, as several private companies not yet ready to go public were able to raise money from investors too.
Cannabis is a very capital intensive business, but this readily available equity capital is quite an expensive source of funds to finance cultivation, processing and retail build-outs. Given federal illegality, cannabis companies don’t have access to banks for traditional mortgages. In order to avoid raising additional equity, some cannabis companies have sold and leased back their real estate, and this is an avenue that seems to be gaining momentum. This week, Treehouse REIT announced that it raised $133.5 million in a private placement. During its joint conference call with MedMen, which is initially managing and advising the company, it indicated that it is on track to go public, where it will join Innovative Industrial Properties (NYSE: IIPR) as the only publicly-traded REIT. What makes Treehouse different from IIPR is that it intends to focus more on retail than cultivation, which it believes is a safer bet due to the ability to more easily re-purpose the property, if necessary. It also indicated that it intends to allocate half of its capital to MedMen.
The Treehouse transaction is rather remarkable in its size. It was just two years ago that IIPR struggled in its IPO, raising just $67 million after initially attempting to raise $175 million. Of course, things have improved dramatically for IIPR, which remains the only publicly-traded REIT focused on cannabis. The company has raised substantial capital subsequent to the IPO, selling $15 million of preferred stock and then $83.7 million of common stock at $26 and, more recently, $119.6 million of common stock at $40, it’s largest transaction, which was smaller than the Treehouse private placement. The success of IIPR, which has increased 159% since the IPO and trades at about 2X its book value and 38X projected 2018 adjusted funds from operations (AFFO), is likely helping to spark investor interest in Treehouse.
We think that the Treehouse capital raise as well as the entry of other capital providers is great news for for the industry. We note that MedMen isn’t the only multi-state operator (MSO) that has created a real estate affiliate, as Harvest Health & Recreation announced plans last month to partner with two family offices to form Aina We Would, LLC to create an investment vehicle with up to $100 million in committed capital, with Harvest agreeing to lend AWW at least $30 million. With interest rates remaining historically low, investor demand for higher-yielding assets should remain strong, allowing this conduit of capital to the cannabis industry to expand.
Following its recent acquisition of Canadian LP Good & Green and its financing round that included Canopy Growth as a strategic investor, 48 North is poised to capitalize on demand for its next-generation cannabis products targeting the health and wellness market and for organic cannabis. With two indoor facilities and a pending 100-acre outdoor organic farm, the company, which is one of the few women-led Canadian LPs, has developed a unique strain-specific water-based sublingual cannabis spray with rapid onset.
To learn more about 48 North, a client of New Cannabis Ventures, visit the company’s Investor Dashboard that we maintain on its behalf and click the blue Follow Company button in order to stay up to date with their progress.
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
- Aphria Posts Sales of $21.7 Million as CEO and Director Announce Departures
- Aurora Cannabis Projects Q2 Sales of $50-55 Million
- CannTrust Applies to List on NYSE
- Canopy Growth Positions for CBD Market Leadership
- Canopy Rivers Taps Major Canadian Banks for $80 Million Credit Facility for PharmHouse
- Greenlane Announces Closing of $48.25 Million Convertible Note Financing
- GTI Enters Connecticut Medical Cannabis Market with $80 Million Acquisition
- Investors Sue MedMen for Alleged Breach of Fiduciary Duty
- KushCo Holdings Q1 Revenue Increases 186% to $25.3 Million
- Leading Cannabis Analytics Company Headset Closes $12.1 Million Series A
- MedMen to Sell Some Real Estate Assets to Newly Formed $133 Million Cannabis REIT
- Origin House Takes Action to Fend Off Potential Hostile Acquisition Bids
- Privateer to Retain All 75 Million Tilray Shares for Now
- Guest Post: Risk of Federal Enforcement Actions Against State-Legal Cannabis Businesses Declines
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Alan & Joel