A Real Estate Investment trust raises funds from outside sources and then uses this capital to purchase cannabis facilities or property from a cannabis company. It then leases the same property back to that firm. The business model can vary, of course, but effectively, the result is the same.
There are several benefits of this model for cultivators and investors.
Looking at cultivators first, partnering with a cannabis REIT (or selling your assets to lease them again) frees up much-needed cash that otherwise would be tied up in real estate. This allows growers to focus more cash into areas that need it the most, especially in the early stages of business—such as brand and product development. After all, cannabis REITs are buying company assets worth millions of dollars. Receiving that sizeable influx of cash can help growers flourish. As stated, this business model will also benefit many investors and here’s why: Because a cannabis REIT doesn’t actually grow marijuana, it avoids much of the legal and regulatory issues that are still materializing in the space. Moreover, it is providing an important resource to the industry—cash to help fund growth. Therefore in backing these shares, investors know they are taking a piece of the cannabis pie, but have less to worry about in terms of individual operational performances, or laws and regulations that may greatly impact key revenue drivers of a standard cannabis cultivator.
Another favorable mention is that a REIT is required by law to distribute at least 90% of its taxable income to its shareholders as dividends. Further, those dividends are deductible from the REIT’s taxable income. Therefore investors can be certain to be paid out more often from this type of cannabis investment.