The firm announced it is passing on its Lincoln facility to GreenAcreage Real Estate for a price of US$50 million in non-dilutive funding.
Cresco Labs (CSE:CL,OTCQX:CRLBF) has signed a sale-and-leaseback agreement for its cultivation facility in Lincoln, Illinois, in a bid to further solidify its balance sheet.
The firm announced on Thursday (December 12) that it is passing on the facility to GreenAcreage Real Estate for a price of US$50 million.
Concurrent to the closing of the deal, Cresco is entering into a triple-net lease agreement with GreenAcreage and will continue to keep up the facility’s medical and recreational cannabis operations.
“This agreement is representative of the comprehensive approach to capital planning that we anticipate will ensure our future success, while enabling us to grow our footprint both rapidly and responsibly,” said Cresco CEO Charlie Bachtell in a statement.
The executive added that the deal goes a long way to strengthening the company’s position in Illinois, a state that represents one of the largest opportunities for marijuana in the US as its recreational cannabis market goes online in the beginning of 2020. The state could generate up to US$2.5 billion annually in cannabis sales once legalization goes into effect, according to Marijuana Business Daily.
The company said that once completed, the Lincoln facility will span 220,000 square feet, making it the largest facility of its kind in the state. And with the increased production capacity, Cresco said it will be well positioned to increase its existing 25 percent market share in Illinois.
GreenAcreage Chief Investment Officer Jeffrey Lefleur told the Investing News Network (INN) that Illinois offers a particularly attractive opportunity for both cannabis operators and investors because of the existing support the marijuana space in the state already has.
Deals like this come at a particularly difficult time for cannabis companies, the executive said, as the companies struggle to fund their operations.
“The scarcity of capital in the cannabis space is amazing,” Lefleur told INN. “You have a tremendous amount of growth, tremendous cash burn and yet there is not enough capital to go around to support these companies.”
That’s where sale-and-leaseback agreements come in, he said.
Lefleur noted that most financing options available for cannabis companies involve some sort of equity dilution, something firms don’t have to face with leaseback deals.
“The idea of growing your company by constantly giving your company away really is not what’s in the best interest of these companies,” he said.
He described the deals as “a synthetic long-term debt market” that creates value where it currently doesn’t exist for marijuana companies.
Some experts have noted the less profitable aspects of these kinds of agreements, however.
Mike Regan, an analyst with Marijuana Business Daily’s Investor Intelligence, said that deals in the real estate realm are beneficial for cannabis companies since the drug’s illegality at the federal level bars businesses in the space from traditional bank-backed financing — but the deals come at a price.
“It becomes a higher operating cost that that company will incur for the term of the lease and some of these are 15 years, and they’re not very cheap,” Regan explained. “But that’s still cheaper than going out of business.”
The deal with GreenAcreage is Cresco’s second leaseback in its home state. In September, the firm signed an agreement to sell two of its properties in Illinois to Innovative Industrial Properties (IIP) (NYSE:IIPR) for US$46.3 million. Like the GreenAcreage deal, Cresco entered into a long-term triple-net lease agreement with IIP to continue the operations of the two facilities.
Cresco’s shares saw a jump of 8.6 percent early on in the trading day on Thursday following news of its agreement with GreenAcreage.
Image courtesy of Cresco Labs.
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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.