Cannabis Financing Market Insights

Cannabis Financing Market Insights

10 May 2022 AUTHOR Joseph Cioffi Davis+Gilbert LLP Davis+Gilbert recently attended the Benzinga Cannabis Capital Conference, where the most significant and influential industry participants met to discuss the opportunities and challenges of funding growth in the cannabis industry. Joseph Cioffi moderated a discussion regarding the experience of Real Estate Investment Trusts (REITs) and the outlook for financing and regulations. This piece contains some key takeaways to help participants operate effectively in the space and plan for the future. Expectations for Legal Reform Most agree there will be no new significant law enacted by Congress until after the mid-term elections. Hopes have faded for the Safe and Fair Enforcement (SAFE) Banking Act to become federal law within the next twelve months, and the Cannabis Administration and Opportunity Act (CAOA) probably won’t be introduced in August as announced. The market has learned to adjust to less-than-ideal conditions while maintaining hope for progress in Washington. Lending and Capital Alternatives As the industry grows, so does the pool of capital-provider and product options. Cash flow lending has risen to meet demand as many operators face a cash crunch due to high product costs and Section 280E of the Internal Revenue Code, which generally precludes cannabis-related businesses from taking deductions for operating expenses. Equity REITs, which provide capital through sale lease-backs, remain a vital source of liquidity for operators with valuable real property. Investors are benefiting from the long-term structures, while operators are enjoying lower costs and may be permitted more flexibility in operations than they would with traditional lending. Mortgage REITs are also providing capital to operators with valuable real property available as collateral. In any case, although real property is a key consideration, it is only one element in a robust underwriting process that includes evaluating strength of management and financials, the ability to…

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Source : Cannabis Financing Market Insights

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