CASHING IN ON CANNABIS SOUTH OF THE BORDER
CROP sees opportunity in land, infrastructure and branding
Cannabis is a hot commodity. Savvy investors are flocking to this sector and keeping a close eye on new, better and creative ways to capitalize on the financial opportunities in this segment. With all the smart investment that has flooded the cannabis marketplace since the major transition to legalization began a few years ago, there are still some great new prospects on the horizon.
“Sophisticated investors are looking for exposure to the cannabis market worldwide,” says Michael Yorke, chief executive officer and director of CROP Infrastructure Corp. (CSE:CROP, OTC:CRXPF), a publicly traded Canadian corporation focused on strategic investing in the cannabis sector. “We’ve studied this carefully and examined the prospects from an innovative and financial perspective. Given the size of the marketplace and the changing climate in the United States with a legal framework for marijuana, we believe the next big opportunity is in the recreationally legal states.” According to industry researchers BDS Analytics the legal market in California alone is projected to reach $3.7 billion by the end of 2018.
CROP Infrastructure is in the business of investing, constructing, owning and leasing greenhouse projects for licensed cannabis producers, primarily in the U.S., but with increased focus on international markets. They provide financing for select licensed producers in legal growing regions. A team of forwardlooking Canadian financiers has identified this opportunity in the cannabis sector and is spearheading this new venture.
“We wanted to create something for Canadian investors to have exposure in the U.S. market,” says Yorke. “There are many new opportunities being created as marijuana’s legislative landscape evolves in the United States. Rather than investing directly in the growers, which could be difficult and problematic due to changing state-tostate regulations, we’ve designed an investment opportunity that focuses on the land, infrastructure and branding.”
Cannabis regulation throughout the world, including in Canada and the U.S., is in major transition. “But we’re finding that traditional financial institutions are reluctant to take the leap and support business startups in this sector,” explains Yorke. “As a result, licensed cannabis cultivators struggle to secure financing for their land, equipment and their business costs, and would greatly benefit from a strategic partnership with CROP.”
In addition, each jurisdiction that enables lawful growth of cannabis shares a critical factor: while there are many tight regulations around the growing and cultivation of marijuana, there are no stipulations that prevent a non-federally chartered organization from investing in real estate or equipment and leasing to the cultivators.
The set-up is simple: CROP assists legal licensed cannabis operations with their capital requirements in exchange for leasing, branding and management fees. The corporation leases their real estate to a licensed cannabis grower in the United States, then provides turnkey state-of-the-art infrastructure, equipment, operations and branding.
“We’re not involved in the actual growing of marijuana, which is federally regulated and licensed. We’re just investing in the income-producing real estate, agricultural equipment, branding and associated infrastructure. This includes things like land preparation — roadways and structural foundations — greenhouses and storage facilities, and utilities for irrigation, lighting and electrical,” says Yorke.
CROP’s modern greenhouse canopies provide growers with a high-quality production environment at a relatively low cost, giving them a competitive edge in a flourishing marketplace. CROP takes it one step further by offering advice and training for the cultivators, creating a franchiselike relationship. “We work with the master grower, sharing ways to keep costs low when cultivating. We teach them how to operate the facility, negotiate power rates for them and supervise quality control by ensuring that only natural organic materials are used on the property to minimize the financial and operational risks for the growers, and ultimately, our investors.”
The cannabis grown using CROP’s property and infrastructure may be sold by the tenant’s operating license holder under new or existing brands and distribution networks. CROP also offers additional financing opportunities to increase market penetration with enhanced marketing, brand and distributor development through already established brands (white labeling) and dispensary networks.
Agreements between the growers and CROP include a fixed-period leasehold, a management fee structure, access to CROP branding and the CROP “Safety Approval” rating system through access to their preferred network of suppliers.
“CROP provides investors with exposure to this developing market without directly investing in a cannabis producer,” explains Yorke.
CROP partners with growers on a 60/40 basis until all loans are repaid in full. Once 100 per cent of the investment is recouped, CROP continues to receive a minority interest of 30 per cent of earnings to cover the cost of land leasing, equipment rentals, branding and management fees. There’s huge profit potential for growers based on this model: clients with 12 of CROP’s 3,640 square foot greenhouses operating at full capacity (approximately one acre) could yield approximately 24,000 pounds per year and generate more than $24 million (US) in annual sales, based on prices of $1,000 (U.S.) per pound.
CROP’s portfolio currently consists of 109,000 square feet of canopy in development in Washington and California with framework in place for further expansion in 2018. Their current roster includes tenanted facilities in California and Washington state, with aggressive US and global expansion planned for the months ahead.
As an early participant in one of the largest global emerging marketplaces, CROP is well positioned as a leader in this area with legalization of marijuana on the horizon in the US. “We’re actively seeking new business partners to take advantage of our turnkey greenhouse facilities, brand positioning opportunities and specialized equipment,” says Yorke. “We offer cannabis producers the necessary infrastructure to help them maintain a competitive edge in this exciting new space. We have the team, vision, industry relations and access to financing to develop and grow this innovative opportunity for our investors.”