Marijuana Business Magazine April 2020

A Creative, Advantageous Financing Solution for Cannabis Industry Players This new kind of financing eliminates the need for a mezzanine loan and could be one more tool in a cannabis company’s toolbox when looking for creative financing solutions. RE Preferred Equity investment also comes without many of the provisions found in a typical preferred equity or mezzanine financing structure The new preferred equity formula contains: • Lower cost of capital • Reduced risk for borrowers and their investments • Less likelihood of losing management or controlling interests “In new construction or project acquisition, the loan exit options – loan takeout by refinancing or loan take by sale – are just about always subject to bank due diligence, loan cost and fees, cash out of pocket, bank credit enhancements, and bank loan Understanding RE Preferred Equity A blended structure that combines elements of private equity, mezzanine debt, and traditional investment finance, the RE Preferred Equity formula involves making an equity investment in the property of the borrower. Although the investment is junior to the development debt lender, it is senior to the borrower’s equity. The new formula also packages the financing into a single asset – the instrument equity joint venture (EJV). For cannabis companies needing money to fund operations and expansion, the formula has two main benefits, according to Gray Sheldon, managing partner at LaSalle Nova Capital Markets Chicago: reduced cost of capital and efficiency of time. “Relative to mezzanine financing or short-term bridge loans, which can come at a cost of 8.99% to 10.99% plus loan point, origination fees, closing and third-party costs, it would behoove those in the cannabis industry to look at this particular model,” Sheldon says. “It has significant cost benefits to it.” haircut,” Sheldon says. “This option is a low-cost, low-hassle alternative for cannabis industry players.” New Times and a Growing Industry Require Rethinking Traditional Norms To learn more about the RE Preferred Equity model for the cannabis industry, contact: Nova Scotia Land Finance Company Preferred Equity: Land sale acquisition-lease buildouts-cap x improvements-regulatory cost @ 30% up to 60% Debt lender, landowner or landlord @ 50% to 70% LaSalle Nova Capital Markets 123 LaSalle, Chicago, IL Phone: 312.224.4160 Email: [email protected] The New Model: Preferred Equity and/or Senior Debt