Marijuana falls up to 50% on the stock market, but its landlords are made of gold

The cannabis business is at a delicate moment. They have been down for 7 months as disappointment takes hold of the markets and stock market declines are already significant. With the arrival of Biden, the sector exploded in euphoria and with the Democratic majority in the Senate, investors took it for granted that legalization throughout the country was already here. Now, time has passed and nothing has changed and, having all the political resources for it, investors understand that the possibility of legislation in the short and medium term is vanishing.

With the sector depressed, an alternative winner has emerged. Hundreds of funds dedicated to renting properties are making gold this 2021 in the US and the legal limbo between the states that approve consumption and the national government has made them one of the most important agents in the market.

The producing companies, being part of a controversial sector and that, find serious problems to finance themselves and find lines of credit with which to buy land on which to locate their plantations. That is where funds come in that have seen an opportunity in this situation. Their role is to get them the money and the loans to lease the land to marijuana producers with superlative returns.

From the RCCB consultancy they explain that “banks and other financial institutions often refuse to do business with cannabis companies” due to “reputational damage and because they are assets that are subject to seizure by many federal authorities.” In addition, they point out that something as common as acquiring insurance “is something really complicated” and, if it is achieved, “it becomes very expensive.”

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The main company of ‘real state’ of greenhouses, Innovative Industrial Properties (IIP). With more than 2,000 million dollars in assets under management and a third of its activity in cannabis, it achieves a return of more than 17% of each of the properties that it rents to producers. The last one that closed was a rental contract with Gold Flora for more than 60 million dollars.

He is also a regular in this type of operation and, according to his last letter to investors, he obtains an average of 15% returns for this business. But he is also managing to redirect millionaire credits towards this activity. He recently got a loan from the Federal Deposit Insurance Corporation worth 20 million dollars. A public line of credit with an interest of 4.75% that will invest in buying land to lease and from which he expects a return of more than triple.

The only listed company has a 225% revaluation since 2020

Figures that would offset the risks for which commercial banks stay away from cannabis values. But, going back to Innovative Industrial Properties, it is the only company that does this. And proof of the success of this business model is its evolution on the stock market, which has already reached a revaluation of 49% in 2021 and 251% since 2020.

The success of this fund on the trading floor contrasts with the falls that the marijuana sector is experiencing in general. one of its main exponents, it leaves 51% in 2021. It is one of the biggest setbacks, but not the only one, Aurora Cannabis falls 30%, a figure almost identical to that left by Cronos Group (-32%), another of the greats in the sector. Only Tilray makes annual gains (14%), but is coming off a 50% drop in 2020.

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These are only those who market the product, the reality for producers is similar. Some of the majors such as Curaleaf Holdings and Jushi Holdings have fallen more than 28% in just three months.

In the long term there are opportunities

Despite the fall, in the long term, many analysts see the sector as viable for significant long-term gains. The reason is that despite the fact that the possible legalization of the US seems more and more distant, the consumption of this product at the national level is more and more established.

They have currently legalized the use of cannabis for medicinal purposes and 42% for recreational purposes. Also, it is only fully persecuted in five states. It is currently a market that generates 1,800 million euros in Canada and in California alone more than 1,000 million dollars have been collected in taxes on cannabis.

In the US global marijuana already accounts for about 17.9 billion and, according to estimates made by the company leafly.com, in 2020 it would have experienced a boom of more than 60% growth. The employers of the sector in the North American country speak of an annualized growth of 16% during the next five years.

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