Power REIT Acquires Colorado Properties for Cannabis Cultivation

Power REIT has acquired two adjacent property parcels totaling four acres in Crowley County, CO, through a wholly owned subsidiary, PropCo.

Including the land acquisition cost, Power REIT’s total capital commitment to the project is approximately $2.95 million. The REIT will also fund the construction of a 38,440-square-foot greenhouse cultivation facility.

Along with the transaction, PropCo entered into a 20-year triple-net lease with Cloud Nine Farms LLC.  Cloud Nine is a minority-owned business owned by Joel Perez, who has extensive experience in the construction industry. Perez and his team will operate the cannabis cultivation facility, development and supply chain logistics.

Cloud Nine will pay all property-related expenses under the lease terms, including maintenance, insurance, and taxes. The lease provides two five-year renewal options and has a personal guarantee from the owner of Cloud Nine after the initial 20-year period ends. Cloud Nine will maintain a medical marijuana license and will operate per all Colorado and municipal regulations.

After a deferred rent period during construction, PropCo will earn a full return of its invested capital over the next three years. After that, PropCo receives an approximately 13% yield increasing at 3% per annum.

Power REIT says Crowley County is in an area that offers a growing environment for efficient and sustainable greenhouse cultivation.

David Lesser, Power REIT’s Chairman and CEO, says the transaction continues the company’s strategy of investing in sustainable properties. “Southern Colorado continues to represent a compelling opportunity for our investment strategy in cannabis cultivation facilities,” he said in a prepared statement. “We believe that each additional acquisition diversifies our tenant concentration and further improves our focused strategy within this vibrant market, which we believe has significant runway for growth.”

The legal cannabis market has had strong growth during the pandemic. It grew by about 45 percent in 2020, and US cannabinoid sales are expected to top $24 billion in 2021, according to BDSA, a top cannabis market research firm. 

As more states approve measures to regulate cannabis for medical and/or recreational use, expect more net lease investors to look to these assets as viable additions to their portfolios, according to Will Wamble, the first vice president of SRS Real Estate Partner’s Net Lease Group. 

“Ultimately, we can expect to see the medical marijuana industry grow over the coming years as it becomes more mainstream,” he says. “I also believe we will see the buyer pool grow for this asset type from largely opportunistic investors to more traditional and institutional investors seeking a stabilized property run by experienced operators.”