Cannabis 'Green Rush' Fuels Growing Demand for Large-Scale Agri-Campuses

With Fresh Capital, Developers Combine Marijuana Operations Under One Roof

AmeriCann Inc. is building a planned 987,000-square-foot cannabis campus 30 miles northeast of Providence, Rhode Island.

Entrepreneurs are building modern cannabis campuses in response to what some real estate brokers call a green rush that's driving up occupancy rates and prices of property suited to cultivating and making products in California, Colorado and other marijuana-friendly states.

A new crop of capital providers has cautiously stepped forward to provide financing for cannabis real estate ventures, cognizant the nascent industry's legal and regulatory status remains murky. The federal government classifies marijuana as a Schedule 1 illegal drug even as 29 states have legalized medical cannabis use. Recreational use is now permitted by state governments in Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon, Vermont, Washington and the District of Columbia.

Since Colorado in 2012 became the first state to legalize the use of marijuana on a recreational basis, the other states have followed, driving up demand for pot beyond medical uses and spawning new businesses. In response to regulations limiting the size and location of cannabis cultivation, entrepreneurs are adopting a mixed-use development approach, combining the operations of growers, manufacturers, sellers and other tenants in campus-style projects of as many as 1 million square feet.

In the latest project to break ground, Denver-based AmeriCann Inc., a publicly traded designer, builder and financier of projects for marijuana businesses, broke ground in the past week on the first phase of the Massachusetts Medical Cannabis Center, a 987,000-square-foot cannabis campus on 52 acres in Freetown, Massachusetts, that will lease to as many as eight growers and processors.

The initial project in Freetown, located 30 miles northwest of Providence, Rhode Island, is planned as a 30,000-square-foot cultivation and research center scheduled to open next spring. Over the next couple of years, the operation is expected to reach nearly 1 million square feet across three buildings, according to AmeriCann Chief Executive Tim Keogh.

"One of the biggest problems for the cannabis business is finding suitable commercial properties," Keogh said in an interview. "The campus format solves two big problems: how and where are companies going to grow and process the product. We've spent several years de-risking this type of asset and creating a platform for bringing efficient, low-cost cannabis buildings and infrastructure to the market."

The new facility will use greenhouses flooded with natural sunlight, which Keogh said is superior to the converted warehouses with artificial light traditionally used by growers, which incur high energy and other utility costs.

In the Coachella Valley community of Cathedral City, California, Canada-based Sunniva has started construction on two buildings totaling almost 500,000 square feet. The company plans to employ 100 people in the Coachella Valley, home to hundreds of small cannabis sellers and growers as well as the famous Coachella Valley Music and Arts Festival.

A couple hundred miles north, Canna-Hub, a Roseville, California-based developer, broke ground in July on a 16-acre facility in Mendota aspiring to be what Chief Executive Tim McGraw describes as the "cannabis center of the Central Valley."

Foreign investment and a small but increasing stream of institutional capital are helping fund the developments as cannabis makes a steady but uneven maturation into an industry embraced by mainstream financial markets.

Many of the California cannabis-related projects are fueled by foreign capital, according to Hilary Bricken, an attorney at Los Angeles-based law firm Harris Bricken PLLC, which represents marijuana businesses of all sizes in several states.

Bracken said she’s fielding inquiries from foreign investors in Israel, Canada, Spain, South America, The Netherlands, the United Kingdom and Germany interested in cannabis-related manufacturing and growing operations, especially in the Coachella Valley cities in Riverside County.

"We've seen large amounts of foreign money come in for cannabis real estate projects, especially in the Coachella Valley and certain desert cities," Bracken said. "In addition to buying the real estate, the foreign investors put money into greenhouses, grow lights, storage facilities and more to offer turnkey cultivation and processing facilities for lease to local businesses."

Other real estate investors are also looking to fill the void left by conventional lenders unwilling to take a chance on the uncertain legal status of the nascent industry.

Newport Beach, California-based Pelorus Equity Group on Sept. 18 launched a $100 million fund offering loans for acquisition, construction and improvement of commercial and industrial buildings to established cannabis businesses. Pelorus just closed a $25 million fund raised from wealthy investors and their advisory firms, allocating all the proceeds to 13 real estate projects throughout California.

"As demand for cannabis products soars, large-scale cultivation, production and delivery systems will be required,” said Kelly Oliver, senior analyst at market research firm IBISWorld. “As a result, the next five years are expected to be defined by the increased involvement of large corporations and heavy merger and acquisition activity.”

Keogh said his company is getting in on the ground floor before large institutional money floods into the sector.

"If it's all institutional capital, all the opportunities are taken advantage of and there's no arbitrage," Keogh said. "We're in that sweet spot where there's an opportunity to build the infrastructure and expand our footprint. Then, as institutional capital really warms up to cannabis, we're in a very exciting spot to take advantage of that."