NEW YORK (MainStreet) — A year into the legalization of recreational marijuana, 2015 may have what it takes to launch the nation’s first reefer Real Estate Investment Trust (REIT).
“A marijuana-related REIT will come together as more real estate experts enter the playing field,” Scott Greiper, CEO with Viridian Capital & Research in Manhattan. “But as of yet the amount of capital required to build out a REIT has yet to come to market.”
That's because marijuana is still classified a Schedule 1 drug under the Controlled Substances Act (CSA).
“When grow facilities are in a zone for marijuana, it’s triple the price,” Greiper told MainStreet. “But larger investors that have the amount of capital to build out these facilities are still concerned about federal illegality.”
Similar to a corporation, REITs are required by the IRS to pay out at least 90% of their incomes to investors who hold units much like shareholders who own stock in a company. This tax stipulation has warded off real estate investors, such as MJ Holdings in Miami, from launching a pot REIT.
“It’s the inability to draw on conventional financing for leverage to increase returns that has prevented such a REIT from launching,” said Adam Laufer, co-CEO of MJ Holdings. “We don't want to have to distribute 90% of our revenue under IRS rules. We'd rather retain earnings to grow the business in different verticals.”
REITs are a collection of properties and mortgages offered as a unit investment trust, representing a fraction of ownership.