There's a new kid on the block in Oklahoma. Vinita Cannabis, also known as VinCann, will operate a 9.35 acre plot of land with approximately 40,000 square feet of greenhouses as a cannabis cultivation facility in Oklahoma. "This cannabis cultivation facility is already operational and has significant potential for growth in undeveloped areas that can be easily constructed to expand the operation ," says Jared Schrader, VinCann’s President. "This allows VC to pursue a strategy focused on speed to revenue and has the potential for rapid revenue growth given the nature of Oklahoma cannabis licensing which is based on an unlimited plant count per property. Based on the initial property configuration, VC intends to quickly establish approximately 32,000 cannabis plants which can be harvested approximately five times per year. Based on recent prices for cannabis in Oklahoma, this can result in an annual run rate of revenue in excess of $8 million.”
Behind the project are investors Millennium Investment & Acquisition Co and Power Reit. Power REIT has acquired the 9.35-acre property in Craig County, Oklahoma through their wholly owned subsidiary PropCo. "It is located in the northeast corner of Oklahoma which offers a favorable growing climate for greenhouse cultivation," the Power REIT team says. Concurrent with the acquisition, PropCo entered into a 20-year “triple-net” lease with Vinita Cannabis LLC, which will operate the Property as a cannabis cultivation facility.
As part of the transaction, Power REIT has agreed to fund the renovation of approximately 40,000 square feet of greenhouse space, 3,000 square feet of office space, and 100,000 square feet of fully fenced outdoor growing area with 20,000+ square feet of hoop structures. Power REIT’s total capital commitment for the project including the property acquisition cost is approximately $2.65 million.
At the same time Millennium Investment & Acquisition Co. Inc. today announced that it has agreed to invest in the newly formed cannabis operator. MILC has agreed to invest $750,000. The investment will take the form of a preferred equity interest that receives a full return of invested capital plus a preferred return of 12.5% after which MILC has a 77.5% ownership stake. The remaining subordinated ownership will be held by the management team of VC.
"Oklahoma is a relatively new cannabis market and due to its open licensing represents an interesting opportunity. It is referred to as the “wild-wild-west” of cannabis and is projected to see rapid growth in the coming years. This investment positions MILC for attractive risk adjusted returns and by working with Power REIT provides significant leverage to its investment," the MILC team says.
David Lesser, Power REIT’s Chairman and CEO and MILC’s Chairman and CEO, commented, commented, “Power REIT is expanding their nationwide footprint and diversifying portfolio risk with this acquisition in Oklahoma. Our debut in this state positions us to participate in what has been coined, the “wild-wild-west” and benefit from the opportunities inherent with the Oklahoma cannabis market rapid expansion. This cultivation facility is already operational and will be upgraded to provide operational improvements. There is also ample expansion opportunity that will allow our tenant to capitalize on the increasing demand for cannabis products in Oklahoma.”
“MILC recently announced an initial foray into cannabis cultivation with a transaction in southern Colorado. This transaction expands MILC’s entry into the cannabis cultivation space as MILC transitions to an operating company from an Investment Company under Securities and Exchange Act of 1940. As previously disclosed, MILC has now completed the sale of its sole investment in securities and is now focused on two areas: sustainable cannabis cultivation in greenhouses and production of activated carbon. MILC is enthusiastic about the prospects for these two focus areas and its portfolio expansion with this investment in Oklahoma. I look forward to announcing additional exciting developments in the near future.”
“VC is thrilled to have Power REIT’s support to facilitate taking this project, stated Jared Schrader, VinCann LLC’s President. “Taking over the existing operations gives us a running start in Oklahoma and we look forward to building a team which can compete favorably within this rapidly growing market. We believe this property is well-positioned to allow us to become a large-scale producer of high-quality cannabis at a competitive cost. We are focused on speed to revenue as well as ramping up our plant count which will drive substantial revenue growth.”
The lease requires VC to pay all property-related expenses including maintenance, insurance, and taxes. After the initial 20-year term, the lease provides two, five-year renewal options and has a personal guarantee from an owner of VC. As mandated by the lease, VC will maintain a medical marijuana license and will operate in accordance with all Oklahoma and municipal regulations. The lease also prohibits the retail sale of cannabis at the Property.
After an initial deferred rent period to allow for renovations, the lease stipulates rental payments that provide PropCo with a full return of its invested capital over the next three years and, thereafter, provides an approximately 13% yield increasing thereafter at a rate of 3% per annum. The lease, as structured, provides straight-line annual rent of approximately $503,000, representing an unleveraged Core FFO yield of approximately 19% on the invested capital.
VC is led by Jared Schrader, an experienced cannabis cultivation operator with a solid track record. Mr. Schrader recently grew revenue at a Colorado cannabis cultivation facility from annual revenue of $150,000 to weekly revenue of over $150,000 (i.e. > $8 million annually) over the span of two years. Simultaneous with Power REIT’s acquisition of the Property, Millennium Investment and Acquisition Company Inc. provided startup capital to VC whereby MILC is a majority owner of VC in the form of a preferred equity ownership stake in a joint venture with the management team of WC. David H Lesser, Power REIT’s Chairman and CEO is also Chairman and CEO of MILC.
Mr. Lesser concluded “We continue to deploy capital on very attractive terms within the CEA space, while focusing on leasing properties to regulated cannabis tenant operators. This has driven dramatic growth that we believe will continue with the current demand for CEA real estate. We also believe that our relatively low trading multiple of Core FFO combined with this dramatic growth trajectory creates a compelling investment opportunity. We look forward to additional announcements in the near future as we continue to implement our strategic business plan.”