CHOOSING CANNABIS INDUSTRY WINNERS: THE PELORUS EQUITY GROUP AND GROWPACKER SUCCESS STORY
In any young industry it is difficult to find value-add capital and development contributions. For the cannabis industry, real-estate lending, from origination to deal completion requires careful navigation. Pelorus Equity Group, one of the few providers of value-add bridge commercial real estate loans for cannabis businesses and owners has executed 63 successful commercial loan transactions and deployed $350M to cannabis-use real estate owners, comprising 3,100,000 sq. ft. across eight U.S. states since 2016. While other lenders in the space rely on standard data to make lending decisions, we use a proprietary data project tool to identify the best borrowers. The technology we’ve developed maps the licenses and regulations in each city, state and region, giving a clear picture of the market dynamics and risk.
This gives us unique insight into the complexities of the market and helps ensure competent vetting of approaching borrowers, while also helping us proactively reach out to potential borrowers. This gives us inbound deal flow opportunities and a greater competitive advantage in the sector, and so far, has helped us identify 5,600 cannabis cultivation licenses across 3,000 unique companies in California alone. This leads to high-value partnership opportunities for the fund.
One such example is Growpacker, a co-packing, manufacturing and distribution company in Southern California. Growpacker specializes in state-compliant packaging for third-party growers, and white labels cannabis-infused consumer products for other operators in the sector. Finished products are then distributed to dispensaries across California. The California market has seen significant demand for co-packing and third-party manufacturing, which we expect to continue.
Our research and selection process is rigorous. We conduct a thorough analysis of the business, including benchmarking, market size evaluation and comparisons of property types statewide. After our initial exploration, the lending due diligence begins. As part of our ‘pre-screen’, we delve into collateral valuation, construction budget, sponsor credit worthiness, experience and necessary licensing. Next, we collect a submission package, including the loan application form, business plan, financial statements and cannabis licenses amongst others. Only then do we complete underwriting and finalize the appraisal with the vetted construction budget.
In looking at Growpacker, we determined the sustainability of demand in this section of the supply chain and saw that it’s a company well-positioned to capitalize. The loan amount was $8M at $288 per sq. ft. for a term of 36 months, a note rate of 14% and LTC 71%. The transaction itself included options for warrants, namely our right to monetize the warrants at loan maturity via a put, hold the options, or exercise options at their discretion. Furthermore, we had an option to convert $1M of the $8M loan amount into company shares at its valuation, at the time of loan origination. This provided potential additional upside if shares were liquid at maturity and the company had increased in value.
Growpacker used the loan to complete an interior build-out and make specialized FF&E improvements, including building walk-in coolers, commercial ovens and improved industrial beverage manufacturing equipment. Now the company has the right infrastructure to make the most out of the myriad opportunities in the cannabis real estate sector.
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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