LOS ANGELES—The cannabis real estate market is gaining momentum, and fast becoming its own asset class. While there are plenty of opportunities in this market, but how do landlords appropriately vet a tenant in this very new market that remains federally illegal? MJ Real Estate Investors is a new Beverly Hills-based investment firm is focusing on cannabis real estate and focuses on vertically integrated companies as tenants because they think that they have more market stability.
“There are cultivators and companies that focus on cultivation, and then there are companies that do testing and there are other companies that focus on sales,” Jeff McGuire, co-founder and president of MJ Real Estate Investors, tells GlobeSt.com. “As a company, we have decided to focus strategically on the vertically integrated companies with dominant market positions because those companies are able to cultivate their own plants and sell them in their own stores.”
The firm has focused on these firms since its start. They believe that these firms have greater protection against market changes than companies that are not fully integrated. “In September 2014 when we bought our first property, and we felt that those tenants in a market dominant position were the tenants that could grow their own product,” says McGuire. “The companies that are only growers are going to be at a disadvantage because they are more susceptible to market dynamics like supply and demand because they can't control pricing.” In the Colorado market, there have been 1 million square feet of new product come on the market. As a result the price of cannabis has fallen, but the vertically integrated companies have not been affected.
In addition to a lack of credit and history, these tenants also pose banking challenges because of the illegitimacy of the industry at the federal level. Although banking is challenging for these tenants, MJ Real Estate has vowed not to accept cash. “We don't accept cash, and that was something that we decided not to do when we initially got into this industry,” says McGuire. “One of the tenants that we have uses a credit union that works with the regulators. It is called Safe Harbor, and it is in the State of Colorado. The nice thing about that is that our tenants can have a banking relationship. The banking industry is starting to move into the sector, and maybe not the large federal banks yet, but certainly the small regional banks.”
LOS ANGELES—The cannabis real estate market is gaining momentum, and fast becoming its own asset class. While there are plenty of opportunities in this market, but how do landlords appropriately vet a tenant in this very new market that remains federally illegal? MJ Real Estate Investors is a new Beverly Hills-based investment firm is focusing on cannabis real estate and focuses on vertically integrated companies as tenants because they think that they have more market stability.
“There are cultivators and companies that focus on cultivation, and then there are companies that do testing and there are other companies that focus on sales,” Jeff McGuire, co-founder and president of MJ Real Estate Investors, tells GlobeSt.com. “As a company, we have decided to focus strategically on the vertically integrated companies with dominant market positions because those companies are able to cultivate their own plants and sell them in their own stores.”
The firm has focused on these firms since its start. They believe that these firms have greater protection against market changes than companies that are not fully integrated. “In September 2014 when we bought our first property, and we felt that those tenants in a market dominant position were the tenants that could grow their own product,” says McGuire. “The companies that are only growers are going to be at a disadvantage because they are more susceptible to market dynamics like supply and demand because they can't control pricing.” In the Colorado market, there have been 1 million square feet of new product come on the market. As a result the price of cannabis has fallen, but the vertically integrated companies have not been affected.
In addition to a lack of credit and history, these tenants also pose banking challenges because of the illegitimacy of the industry at the federal level. Although banking is challenging for these tenants, MJ Real Estate has vowed not to accept cash. “We don't accept cash, and that was something that we decided not to do when we initially got into this industry,” says McGuire. “One of the tenants that we have uses a credit union that works with the regulators. It is called Safe Harbor, and it is in the State of Colorado. The nice thing about that is that our tenants can have a banking relationship. The banking industry is starting to move into the sector, and maybe not the large federal banks yet, but certainly the small regional banks.”
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