Cannabis has far-reaching applications beyond recreational and medicinal uses–it now impacts everything from beverage production to home construction and more and more traditional industries have incorporated it into their products. Forecasters predict the global cannabis market will reach $62.1B by 2026, and ~16% of this growth will come from the California and Colorado markets alone.
Accelerated demand fuels the creation of cannabis startups, but these businesses require highly specialized properties in which to operate. Similar to data centers, cold storage and lab spaces they need infrastructure such as security, climate control, energy throughput and lighting. Traditional commercial real estate properties require costly construction or improvements before they can be ready for plant cultivation, processing, packaging and distribution.
Cannabis-ready real estate increases in value dramatically, yet access to innovative lending solutions in the industry is lacking. The process of securing financing from traditional lenders also lags, due to the complexity of the industry and the build-outs. Owners of commercial real estate, and owner-operators of cannabis companies who face these delays stand to lose millions in monthly revenues and/or higher rents.
This is where Pelorus Equity Group comes in. As one of the leading providers of value-add bridge commercial real estate loans for cannabis businesses and owners, Pelorus was established in 2010 to provide specialist finance in value-add real estate. In 2016, we entered the cannabis market, and in 2018 launched our $100M offering for the Pelorus Fund, a privately held mortgage mREIT for cannabis use and cannabis-related properties. Through our fund, we help cannabis business operators—whether entering new states, or expanding their operations in existing markets—upgrade, improve and complete build outs to meet marketplace demands, cut the drag time to get their cannabis businesses up and running sooner.
The fund has seen significant year-over-year growth of 434% in 2021, largely driven by increased institutional interest. It was upsized to $250M in 2020, and converted to a tax-efficient private mREIT. Recently, we upsized the fund offering to $1B. In 2021, we saw a spike in the need for funding to support build-outs, expansions and upgrades. In 2022, we expect to see a sustained need for commercial real estate funding to continue. We will use the net proceeds to continue to be the best-in-class, non-bank, cannabis real estate lending solution in the industry. To help ensure this, we launched a new stabilized lending program, with three- to five-year amortizing loans to quality sponsors. It’s offered to current borrowers upon construction completion, as well as to new borrowers who meet our underwriting criteria.
Investors may have concerns about entering this nascent industry; it is challenging to keep up with regulatory changes, and no one wants to get involved in a potential legal battle. But with increasing advocacy that cannabis be legalized at the federal level, and several pieces of legislation in favor of legalization already pending, the legal outlook is relatively benign. We mitigate what legal risks there are by forging strong partnerships with industry players. We were the first fund in the cannabis sector to secure a line of credit up to $20M with a Federally chartered FDIC insured bank. The line of credit had a rate of 4.75% and no non-usage fees.
Understanding the complex local, state and municipal regulatory landscape is critical for identifying appropriate operating locations. We’ve developed a proprietary AI-driven data tool and have deep insight into U.S. supply dynamics, so we can better assess risk and price our loans. Our ability to structure asset-based lending solutions for complex transactions allows our clients to scale their operations, and cross numerous thresholds that most thought were unattainable. In the coming year, we will continue to scale our assets under management while bringing more novel deal structures to some of the largest and fastest-growing cannabis companies.
The cannabis market is rapidly evolving, and by focusing solely on cannabis-use lending we are well-positioned to take advantage of the huge market opportunities this sector presents through real estate. We have the experience, resources and specialized expertise to help investors stay ahead of the cannabis curve and we believe our efforts to support owner-operators are benefitting the entire cannabis ecosystem.
Note: Figures in this blog were correct at the time of publishing. Please read our latest press releases for the most up-to-date news and figures.
About Pelorus Equity Group
Pelorus Equity Group (“Pelorus”), the leading provider of value-add bridge commercial real estate loans to cannabis businesses and owners with cannabis-related real estate, and its Pelorus Fund, a private mortgage real estate investment trust (“mREIT”), are changing the commercial real estate lending landscape in the cannabis sector. Pelorus Fund offers a range of innovative transactional solutions to address the diverse needs of real estate investors and portfolio managers, and its flexible acquisition and bridge lending programs are the direct result of the firm’s involvement in more than 5,000 transactions of varying size and complexity. Since 1991, Pelorus’ principals quickly understand an opportunity, structure a logical solution and execute a timely close and have participated in more than $5B of real estate investment transactions using both debt and equity solutions. To date, Pelorus has completed 63 commercial real-estate loan transactions and deployed more than $350 million to cannabis businesses and real estate owners, comprising of more than 3,200,000 sq. ft. in eight states across the U.S. With the ability to fund approved construction draws for reimbursement in an average of one to three days and a single agreement covering the financing of the entire project, the Pelorus Fund helps to stabilize cash flow for its clients, so they are able to remain focused on their core business goals and objectives.
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