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TM The Hemp and Cannabis Horticulture Magazine VOLUME 6, ISSUE 4 GROW SPOTLIGHT RAD SOURCE CENTERFOLD what happens after we harvest? AN ANSWER EVERY GROWER & CONSUMER NEEDS TO KNOW USA-$6.99 | CAN-$8.99 | growmag.com ESSENTIAL PRODUCTS: PROCESSING, PACKAGING & MORE BILL DRAKE’S BACK STORY: THE CULTIVATOR’S HANDBOOK BITCOIN & CANNABIS: BLOCKCHAIN PROTECTS BIODIVERSITYWWW.HALEXTRACTION.COM ! INFO@HALEXTRACTION.COM ! 720.504.4726 TO KEEP YOUR EXTRACTION PROCESS RUNNING SMOOTHLY THE INDUSTRY’S SAFEST EXTRACTION BOOTHS USELEARN MOREA New Model for Cannabis Industry Investment The green rush continues unabated. The roster of states legalizing adult use recreational marijuana keeps growing, and with hemp now legal at the federal level, the market for CBD products has exploded. Senior Secured Model for Cannabis The Old Model: Equity TOP Common Equity 10%-20% return MIDDLE Preferred Equity 6%-12% return FIRST Debt 4%-8% return !is is representative of a general real estate deal. Actual values vary from one deal to the next. 5 I S K & 5 E T U 5 N To fund their ambitions and grow their businesses, cannabis companies – from cultivators to distributors to dispensary operators – are increasingly turning to private equity investors for capital infusions to fund their operations and their acquisition of needed real estate for those operations. The total capital raised by the cannabis industry VN\URFNHWHG ELOOLRQ IURP 2017 to 2019 alone, according to the 2019 Marijuana Business Factbook. For cannabis investors and business owners alike, a new approach to preferred equity offers distinct advantages over traditional debt and HTXLW\¿QDQFLQJWRH[HFXWHJURZDQG capitalize on industry opportunities with less downside risk. $QHZ¿QDQFLQJIRUPXODIRUKLJKHQG commercial real estate projects known DV5(3UHIHUUHG(TXLW\KDVSDYHGWKH way for new and innovative ideas to structure cannabis projects with high return expectations. The Old Model: Equity is presented above and on the next page we explain A New Approach to the Capital Stack for Cannabis Investment called, Senior Secured Structure Model ,QWKHSDVWWZR¿QDQFLQJVWUXFWXUHVPH]]DQLQHORDQVDQG preferred equity investments, were the primary ways to recapitalize the capital stack and achieve higher leverage. Now ZLWK$1HZ$SSURDFKWKHUHLVDPRUHVHFXUHGPHWKRGWR¿QDQFHUnderstanding Senior Secured Structure: A blended structure combined use for high return commercial real estate projects has produced a new model formula that involves Preferred Equity, Senior Secured and Mezzanine converted into a JVP legal structure. This new formula is packaged into three different instruments. For the established cannabis professional seeking capital market MONEY STACK to fund operations and expansion, this formula has several EHQH¿WVDFFRUGLQJWR*DU\:LOOLDPVPDQDJLQJSDUWQHUDW5RWKVFKLOG&DSLWDO6ROXWLRQV PDLQWDLQFDSLWDORQEDODQFHVKHHW FROODWHUDOL]DWLRQE\FDVKÀRZEDVHGRQSDVW performance and (3) blanket securitization subject to due diligence. ³5HODWLYHWRPH]]DQLQH¿QDQFLQJRUVKRUWWHUPEULGJHORDQVZKLFKFDQFRPHDWDFRVWRI WR SOXVORDQSRLQWRULJLQDWLRQIHHVFORVLQJDQGWKLUGSDUW\FRVWVLWZRXOG EHKRRYHWKRVHLQWKHFDQQDELVLQGXVWU\WRORRNDWWKLVSDUWLFXODUPRGHO´:LOOLDPVVD\V ³,WKDVVLJQL¿FDQWFRVWEHQH¿WVWR it.” -93 WR&DVK)ORZ SULYDWHLQYHVWRU %RUURZHU(TXLW\ 5RWKVFKLOGLand Finance Company Preferred Equity: 15% to 20% build-outs-cap x improvements-regulatory cost GHEW¿QDQFLQJ Dept lender, landowner, or landlord @50% to 70% Our triple stack model was built from two well-known products used in the real estate arena know as SENIOR SECURED and/or SENIOR STRETCH. This product was designed IRUSURMHFWVWKDWDUHDVVHWSRRUEXWFDVKÀRZULFK)RUWKHHVWDEOLVKHGFDQQDELV SURIHVVLRQDO TXDOL¿HGERUURZHU WULSOHVWDFNLVD GAME CHANGER. A Creative, Advantageous Financing Solution for Cannabis Industry Players 7KLVQHZNLQGRI¿QDQFLQJHOLPLQDWHVWKHQHHGIRUDPH]]DQLQHORDQDQGFRXOGEHRQH more tool in a cannabis company’s toolbox. RE Preferred Equity investment also comes without many of the provisions found in a W\SLFDOSUHIHUUHGHTXLW\RUPH]]DQLQH¿QDQFLQJVWUXFWXUHDQGRIIHUV • Lower cost of capital • Reduced risk for borroweres and their investments • Less likelihood of losing management or controlling interests Equity at Purchase or all cash acquisition Gary Williams CCIM Rothchild Capital Solutions of Illinois &RUSRUHWXP2IÀFH&DPSXV6XLWH :DUUHQYLOOH5RDG /LVOH,OOLQRLV J#URWKFKLOGFDSLWDOFRP_GLUHFW RothChildCapital.comNext >