There are many different public companies operating in the cannabis space, ranging from Medical Marijuana Inc.'s (OTCBB: MJNA) medical applications to MedBox Inc.'s (OTCBB: MDBX) automated dispensing machines. At the same time, many private companies have been active in setting up dispensaries and grow operations targeting the growing medical marijuana and recreational marijuana markets in the U.S.
In this article, we'll take a look at why investors may want to pay more attention to the real estate that underlies commercial cannabis grow operations and dispensaries throughout the U.S.
Large & Growing Market
The Denver metro area is one of the largest cannabis growing regions in the U.S. accounting for over a million square feet of industrial space, according to the Denver Business Journal. The sudden influx of demand following the legalization of medical marijuana has had a profound impact on the commercial real estate market, and the legalization of recreational marijuana in 2014 could further accelerate growth in the market over the coming years.
In Colorado alone, the medical marijuana market is estimated to be $350 million in size while the legalization of recreational marijuana could expand that figure to over $500 million in 2014 by some accounts. These figures are significantly larger throughout the U.S. where some analysts peg the total market at between $10 billion and $120 billion per year in size, depending on the success of various legalization efforts and the components included in the estimates.
These numbers are poised to expand over the coming years. According to a Gallup poll
in late-2013, a clear majority of U.S. citizens (58%) support the
legalization of marijuana compared to just 12% back in 1969. Widespread
support and the promise of higher tax revenue has helped 20 states
legalize medical marijuana over the past several years while four states
have pending legislation to legalize the substance, according to ProCon.org.
Capitalizing on the Land
Landlords leasing space to cannabis grow operations often request that rent is paid in cash at prices 30% higher than market rates given the greater risk. Since federal law makes it impossible to obtain financing, many cannabis grow operations can't afford to purchase land outright and are either forced into these unattractive leases or face working capital shortages that can inhibit their ability to capitalize on the industry's rapid growth rates.
Advanced Cannabis Solutions Inc. (OTCBB: CANN) ("ACS") aims to capitalize on these dynamics by purchasing the real estate underlying existing grow operations and leasing it back to them. These sale-leaseback transactions provide growers with additional working capital while providing the company's shareholders with predictable long-term revenues at attractive margins, creating a win-win scenario for both shareholders and customers.
On January 2, 2014, Advanced Cannabis Solutions announced that it met the minimum requirements for a $5 million convertible debt placement. The offering will provide management with the capital needed to execute upon its business plan and comes at an ideal time as Colorado legalizes the production and sale of recreational marijuana. These developments prompted management to project 200% to 400% growth in 2014 versus 2013.
Strong Management Team
Roberto Lopesino Seidita, the company's VP of Business Development, has also operated a consulting business that studies and monitors the medical marijuana market in Colorado and consults to the industry on market pricing and trends. In addition to this practice, Mr. Lopesino Seidita was the owner and manager of North Boulder Wellness Center in Boulder, Colorado, a multi-site medical dispensary and producer of marijuana.
There are many different opportunities for investors to capitalize on the legal market for medical and recreational cannabis, but the real estate market may be one of the largest, safest, and fastest growing subsets of the market. Advanced Cannabis Solutions is a premiere pure-play in this industry, and with the potential for multiple near-term deals such as the recently executed Pueblo County property, ACS should be added to any cannabis investors short list of stocks to watch.
For more information, see the following resources:
Company Website - http://advcannabis.com/
Recent SEC Filings - http://secfilings.com/SearchResults.aspx?ticker=CANN
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