MJBizMag August 2020 - 75

lease with their new landlord. After the
agreement, such businesses are tenants
in the properties they once owned.
Sometimes the agreement includes a
purchase option where the cannabis
firm can buy back its property at
prenegotiated prices.
" When you do that deal, the property
is not owned by you. The building is not
owned by you. It's owned by the saleleaseback
group, " Sassano said. " If you
keep making the payments and if, at the
end, you're able to pay off the balloon
... well then that property reverts back
to you. They'll hand over the keys and
do the title-deed transfer. And now you
own your business outright. "
" I've never seen that happen yet, " he
added.
Moreover, cannabis companies that
want to expand too quickly can land
in hot water by using the capital of the
deal to temporarily shore up issues in
their business-and eventually find
themselves again pinched for cash.
Companies must weigh a saleleaseback
against their other options
for capital, said David Lesser, chair
and CEO of Power REIT. The real estate
investment trust based in Old Bethpage,
New York, owns and leases out cannabis
cultivation facilities to licensed
operators in Colorado and Maine.
" 'Sale-leaseback' is kind of
a buzzword. What we're doing
fundamentally is entering into longterm
leases with operators, and that
gives them the long-term
runway to operate and grow
their businesses, " Lesser said.
PAYING PREMIUMS
FOR PROPERTY
Businesses in the marijuana
industry-thanks to the
plant's federal illegality-often
end up paying a premium to
Building in phases can be prudent in an economic downturn.
hence, we've tried to take a somewhat
different approach. "
Power REIT charges higher rent
upfront to its cannabis tenants and
then reduces the cost-typically in
the third year. The leases also have a
built-in reduction in the event of federal
legalization, Lesser said.
Landlords can offset some of their
concerns around marijuana businesses
by charging higher rents. They can
also tack on addendums to the lease to
reduce liabilities and guarantee issues are
addressed, experts say.
The most frequently cited concerns of
landlords leasing to marijuana-related
businesses involve smell from the site,
risk of theft of cash on property, moisture
issues and fire hazards,
according to a National
Association of Realtors
(NAR) report published in
February.
" It does seem like in
David Lesser
lease their facilities, Lesser said.
" Typically, you see a high going-in rate
with a big built-in premium for cannabis.
And then, it just escalates from there, " he
said. " I don't think that's sustainable, and
states where marijuana has
been legal the longest-so,
legal before 2016-that
commercial (realtor)
members are more willing to both lease
to and work with the cannabis industry, "
said Jessica Lautz, vice president of
demographics and behavioral insights
at NAR.
WORKING WITH LANDLORDS
Cannabis businesses struggling to make
rent amid the economic downturn could
talk with their landlords about payment
deferment or forgiveness, Graff said.
" Many landlords recognize that there's
a value to working with their tenants in
the short term to ensure the continuity of
long-term rental payments. "
Cannabis operators that find themselves
unable to make rent going forward will
have to review their leases for how to
terminate their agreements with the least
financial and legal obligations.
" Many lease agreements will have
provisions concerning a force majeure
clause that in the event of an act of
God-which one might suggest, if not
expressly state, that a pandemic would
qualify as-would provide a right of
termination. Furthermore, many leases
will have clauses concerning the right
for a quiet use and enjoyment by the
tenant, meaning that they will have the
continuous ability to operate out of that
facility, " Graff said.
Cannabis operators that were deemed
nonessential and/or forced to close by
their state or local government officials
might be able to make a case that their
right to use their property was violated
and their lease should be terminated, he
noted.
August 2020 | mjbizdaily.com 73
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