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Investors who are a little wary of the cannabis sector don’t have to dive into the deep end. They can dip a toe into the other end of the sector with a new cannabis-related real estate investment trust, or REIT.
A deal, expected to close by the end of this month will see Subversive Real Estate Acquisition REIT merge with Inception REIT, creating the second publicly traded cannabis REIT. The first cannabis REIT, Innovative Industrial Properties (NYSE:IIPR), based in San Diego, California, was founded in 2016.
The latest REIT is being welcomed by the sector, especially by operators that are finding it difficult to obtain capital. The new REIT will allow operators that cannot secure bank loans the opportunity to sell real estate holdings and lease them back, a process that can inject liquidity into their operations. It is one option to help cash-strapped growers to ramp up their production.
According to BNN Bloomberg, Canadian-based cannabis grower Flower One Holdings (OTC:FLOOF), (CSE:FONE) secured a $39-million loan over seven years in exchange for Subversive REIT's option to buy the company’s 455,000-square-foot marijuana cultivation facility in Las Vegas.
Other cannabis growers, including Curaleaf Holdings (OTC:CURLF), (CSE:CURA), Jushi (CSE:JUSH) and Cresco Labs (OTC:CRLBF), (CSE:CL) have reportedly entered into sale-leaseback deals.
This trend is not limited to the cannabis sector. In fact, a recent survey by E&Y found that as a result of the COVID-19 pandemic, 78% of company executives in large firms across all sectors expect to divest assets in the next two years.
It is estimated that the U.S. cannabis real estate will be valued at $30 billion by 2030, according to Subversive Real Estate.
The emergence of this new REIT sends a signal that the cannabis industry is maturing.
The state of New York will move to legalize cannabis “soon.” That is the latest in the timeframe to legalize marijuana, according to the state’s governor, Andrew Cuomo. And the push that will keep it moving forward is the need to spark economic development in the wake of the ongoing COVID-19 pandemic.
“We need revenue and we’re going to be searching the cupboards for revenue," Cuomo was quoted in a media interview.
One of the hurdles that has delayed legalization of the substance in New York has been disputes between the governor and the state’s legislators on how to use tax revenues generated from the move.
In the meantime, the state is expected to approve regulations for the sale of CBD products, including infused beverages and food items.
Rules for consumer CBD products are expected at the start of 2021, according to news reports.
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