There is a new emerging sector for real estate investors that over the past two years has delivered quadruple-digit gains, is on track to deliver a 28% increase in annual sales until at least 2021 and is expected to see annual sales grow from around $9bn (£7bn) to more than $47bn within a decade in North America alone.
What is it? you ask. Tell me how I can invest. I’ve got pots of money.
Pots, you say? Well, pot is exactly what I’m talking about. Yep, marijuana, weed, cannabis, Mary J, the ‘erb, whatever you like to call it. And no, I am not high, nor am I blowing smoke up your behind.
Bear with me on this one. It is summer, after all. I’m allowed to go a little left wing.
This week the second of a new breed of REITs launched. REITs focused purely on the North American medical marijuana market. Or rather, the buildings it is grown in.
The first REIT was Innovative Industrial Properties, which undertook an IPO in November last year, raising around $20m. It now has around half a dozen properties across five states in the US. Its portfolio totals just over 700,000 sq ft of growing space. It has solid 15-year leases agreed on those properties with an average yield of 15.8%.
And this week Inception REIT announced its intention to IPO. It wants to raise $50m to invest in the growing market.
It is an interesting new “alternative” investment and does seem to offer a lot of potential for high returns.
Canada has, of course, legalised use of the drug (a move that is expected to add another $5bn to annual sales, by the way), in Spain it has been legal since the 1990s, in Portugal since the early 2000s, in Switzerland it is virtually legal (there used to be a 100 Swiss franc fine for possession but the federal court ruled that out last year), it is legal in the Solomon Islands, Norway has recently decriminalised it for personal use, and in the Netherlands you can, of course, eat and smoke it to your heart’s content in a coffee shop.
And then there is the medicinal use. Medicinal marijuana is legal in 29 states in the US and in Australia, Argentina, Austria, Belgium, Chile, Colombia, Croatia, Cyprus, Czech Republic, Denmark, Finland, Germany, Greece, Israel, Italy, Luxembourg, Malta, Macedonia, Mexico, Netherlands, Norway, Panama, Peru, Poland, Puerto Rico, Romania, San Marino, Slovenia, Solomon Islands, Sri Lanka, Turkey, Uruguay, Zambia and Zimbabwe.
That’s a global reach right there. Spending on legal cannabis worldwide is expected to hit $57bn by 2027, with recreational use accounting for 67% of that spend. It’s not a patch on the $22tn that is spent on retail around the world, granted, but the growth is much, much bigger.
The numbers do make sense, particularly for REITs looking for high yields and low volatility, but for an industry which (despite its sometimes unfavourable behaviour) is a bit square, could investing in something that is still slightly taboo ever really take off?
And if you look at MSCI/IPD’s latest figures – total returns of 9.3% in the year to June 2018, up by 4% – good old traditional real estate isn’t performing that badly.
But if there are investors out there looking for a new high, perhaps Innovative and Inception are on to something. All I know for sure is that I’m definitely too square for it all.
Brownie, anyone?
