Alex Pettee, CFA
Cannabis REITs: When They Go Low, We Get High
High on Growth: Cannabis REITs are far-and-away the best-performing REIT sector of the past half-decade as the budding industry thrives in the murky and often contradictory regulatory framework of legalized marijuana.
Joining Innovative Industrial, Power REIT, and AFC Gamma, a pair of newcomers will soon enter the pot party - Chicago Atlantic Real Estate Finance and Freehold Properties - both operating as mortgage REITs.
The ongoing federal prohibition - and the resulting limit on access to traditional banking - has forced cultivators and distributors to turn to alternative sources for capital, particularly cannabis REITs.
Critically, states have adopted tax and regulatory frameworks in which marijuana cultivation licenses are "attached" to the real estate asset - and limited in quantity - an ideal structure for these REITs.
Legalized marijuana production is set to grow 25% annually this decade. Risks are plentiful and valuations are persistently sky-high, but these REITs have established a genuine competitive moat and a track record that can't be ignored, and we see opportunity in the recent pullback.
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