Cannabis Properties Offer Investors Higher Cap Rates
The cannabis industry is rapidly growing, and with that growth comes the need for new retail spaces. National brokerages are now taking on assignments for these commercial real estate properties, as they offer the highest cap rates and longest term leases in the NNN sector. Cap rates for these properties typically range from 7-10% with lease terms remaining from 8 to 15 years, outperforming the national average cap rate for single tenant net leased real estate by 200 to 300 basis points.
One of the key benefits of these leases is that they are often corporate guaranteed, offering the same security as credit-rated national brands in other industries like retail and quick-serve restaurants. Additionally, the leases often include rent escalations, helping to hedge against inflation.
The cannabis market has elements of both the wine and spirits industry, as it is recreational, and the health and wellness industry, as it is also medical. With the recent legalization of cannabis in Mississippi, thousands of patients are flocking to local dispensaries for their supply. This is just the beginning, as the United States is in its earliest stages of legal regulation and mass adoption, similar to the end of the alcohol prohibition era.
According to recent statistics, there are now 16 states in the United States that have legalized cannabis for both recreational and medicinal use. There are many more in the process of legalizing in the next 1-2 years, including Missouri. Some of the best states to consider for net leased cannabis investments include California, Colorado, Michigan, and Florida.
One of the most popular international brands, Cookies, has an opportunity to purchase one of their commercial sites located in Kalamazoo, MI for $3,100,000, with an 8.25% cap rate and 10 years remaining on the corporate guaranteed lease. Financing these deals is the same as any single tenant net leased commercial real estate investment purchase.
In conclusion, the cannabis net leased commercial real estate sector is rapidly growing, and offers investors a unique opportunity to invest in a growing industry with high cap rates and long-term leases. With the legalization of cannabis spreading across the United States, this is a sector worth watching in the coming years.
Credit: Northmarq
Cookies
Michigan
Price: $3,105,575
Cap Rate: 8.25%
NOI: $256,210
Rentable SQFT: 6,172 SF
Year Built: 2020 Renovated
Lot Size: .45 +/- Acres
Lease Type: Absolute NNN
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