Cannabis Real Estate Sale-leasbacks
Unless you have managed a large business before, you might not know about cannabis and hemp real estate sale-leaseback funding. Although it isn’t the right option for every company, it has significant benefits for some. That makes it a funding option worth learning about.
What Is Real Estate Sale-Leaseback Funding?
Before you can enter a real estate sale-leaseback funding agreement, you must own a property. You can still owe money on the property loan. In fact, many businesses choose sale-leaseback funding because they don’t want to owe their property lender a lot of money.
In cannabis and hemp real estate sale-leaseback funding, you sell your property to someone, such as a real estate management company, with the understanding that you get to lease the property from them. You might even decide that you don’t need your entire green zone property, so you only lease a portion of the real estate.
The buyer pays you for your property, but you get to continue using the space to run your business.
Benefits of Cannabis and Hemp Real Estate Sale-Leaseback Funding
Why would anyone want to pay a monthly lease instead of making loan payments to own property outright? It makes a lot of sense for some cannabis and hemp businesses to make this move.
Access Liquid Capital
The property you bought several years ago may have grown in value. You can tap into that increased value through sale-leaseback funding. Suddenly, you have a surge of liquid capital that makes it easier for you to grow your hemp or cannabis business.
For example, let’s say you bought a cannabis storefront in 2018 for $1 million. Over the years, your area’s real estate market has become increasingly competitive. An appraisal shows that your property could sell for $1.5 million. By selling your storefront, you gain about $500,000 that you could use to start a delivery service, update your retail space, or even open a new location.
No Restrictions on Capital Usage
One of the great things about real estate sale-leaseback funding is that you have no restrictions on how you use your capital. In most funding situations, the lender gets to set limits on how you use the money. For instance, you might only be able to spend the money on upgrading your extraction equipment or adding new LED lighting to your grow operation.
Without limitations, you can decide to use the capital in a way that benefits your business best.
Move Large Financial Obligations Off Your Balance Sheet
When you put a property loan on your balance sheet, it shows up as a very large debt obligation. Depending on the type of real estate you own, the balance sheet could – somewhat erroneously – show that you have millions of dollars in debt.
The excessive debt on your balance sheet will make it difficult for you to secure additional funding or attract partners. Anyone taking a quick glance at your financials will probably think you run a failing business, even if you make significant profits every year.
Selling your property moves the debt off of your balance sheet. Instead, you only list the cost of leasing the space. It makes your company look dramatically more successful.
Avoid Debt Financing
Does your company have high-interest debt that makes growth seem impossible? Some businesses turn to debt financing to slowly take control of their finances. Even if debt financing, though, you end up spending a lot of money on interest.
A sale-leaseback gives you liquid capital that you can use to lower or eliminate existing debt. When done strategically, it can help your hemp or cannabis business grow much more quickly than it could under the weight of excessive debt.
Flexible Leasing Agreements
Are you concerned about paying a monthly fee to rent the space you once owned? Most real estate buyers understand that the seller will need time to adjust to the new arrangement. Talk to potential buyers so you can establish leasing terms that you both find agreeable. For example, you might pay a fixed amount for the first five years of the lease. During that time, the new owner will not have the option to increase your monthly payments.
Is Real Estate Sale-Leaseback Funding Right for You?
You have several things to consider before deciding whether real estate sale-lease funding is right for your business. Some factors to think about include:
Whether the value of real estate in your area has increased or decreased (a higher price means you profit immediately).
The interest rate you pay your real estate lender (if it’s high, you might want to get out of the loan).
How long you plan to stay in the location (if you plan to expand within a few years, owning the property might not help you much).
420 Loans: Find the Best Cannabis Real Estate Sale-Leaseback for Your Business
You don’t have to make the decision on your own. At 420 Loans, we have experienced consultants who can help you make an informed choice that benefits your hemp or cannabis business.
Start by filling out an initial inquiry on our website. The initial inquiry gives consultants essential information about you and your business. Your consultant will contact you shortly to go over the details and explore your options.
If you decide to pursue a sale-leaseback opportunity for your cannabis business, your 420 Loans consultant can streamline the process by connecting you with potential buyers and giving you advice regarding the pros and cons of each offer.