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Big potential for real estate loans in the cannabis sector

After the roller coaster that kicked off 2022 on Wall Street, it’s time to put some energy into understanding what’s going on in the cannabis stocks industry. As federal legalization continues to be teased, as well as state-by-state legalization, what’s next for the cannabis industry?

Today we met with Rob Sechrist, President of Pelorus Equity Group, the leading provider of value-added bridging commercial real estate loans to businesses in the cannabis industry, and has over 18 years of experience in the real estate finance industry. Rob’s primary role at Pelorus Equity Group is developing strategic alliances with private and institutional investors, forming capital partnerships, coordinating the growth of the business in new markets and as a transaction underwriter. . Rob also oversees the direction of marketing programs to borrowers, brokers and investors. Today, Pelorus raises several million per month through the company’s investors and equity partnerships.

Schaeffers: What major opportunities do you see in the cannabis industry?

Cannabis is a segment of real estate representing an asset class of approximately $50 billion, making it one of the largest new asset classes in the country, with cannabis properties generating up to 10 to 15 times more income than non-cannabis tenants.

We see a huge investment opportunity in this area, which is why we operate the largest private mortgage REIT in the industry. We have over a quarter of a billion dollars in assets under management and our investment vehicle is private, which means our stock price never changes. This means there is no volatility on your main investment balance – what you will get back when you withdraw from our fund. In addition, our return target for our fund is 15% net IRR. We have achieved this every year that we have been fully operational, and we just reached 15.8% last year.

Schaeffer’s: What major obstacles do you see in the cannabis industry?

Cannabis buildings require very specific infrastructure (specialty-use equipment, HVAC/electrical, and water), so careful management of these investments is at the heart of a successful operation. Currently, federal laws prevent many traditional lenders from financing cannabis-related real estate, especially since stand-alone project financing requirements are unsustainable for a large-scale lender. And even when funding is found, it remains a complex and laborious process. Delays are typical and often cost millions of dollars.

The legal status of cannabis gives insurers and other third parties the ability to deny a claim. They also offer protections for lenders, such as errors and omissions insurance, title insurance, and property insurance, which state that if you do anything federally illegal, the policies may be void and not avenues. Getting your real estate situation right the first time is vital. If this is not done correctly, you risk wasting a lot of time and money. That’s why homeowners need to find the right lenders to understand an opportunity, structure a logical solution, and execute a timely closing.

Schaeffer’s: What motivated you to join this stigmatized industry?

After working in the lending world for decades, we saw an opportunity when our local Congressman Dana Rohrabacher passed the Rohrabacher-Blumenauer Amendment in 2014. We realized that cannabis was the largest class of newly created lending asset in the country, and after analyzing the space for a few years, we launched our first transaction in 2016. Soon after, we became the industry’s first dedicated lender. We were often the first to do a lot of things in lending, both in product types and asset types, so that was something that intrigued us. We also believe in the many benefits that cannabis brings to the United States and wanted to help keep people away from opiates. So we also had a direct interest on that side.

Schaeffer’s: What do you think will be the next ‘big thing’ in cannabis?

An exciting trend is the ability to use more robust data to understand all of the different markets for cannabis use properties. Pelorus has made a significant investment in developing this data and now has the most comprehensive real estate data available for cannabis consumer real estate across the country. Pelorus has made a significant investment to create its own proprietary database to determine – in every state, county, city or any of these areas – what types of licenses exist, who owns the licenses, their addresses, who owns the properties, where they are located, who the lenders are, etc. We wanted to know the current capacity for a given market, for different types of licenses, and to know when the market was going to approach saturation.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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