Power REIT has entered into a lease amendment to fund additional capital improvements to its existing greenhouse cultivation property in York County Maine. The approximately 48,000 square-foot facility sits on six acres and is leased to a leading vertically integrated cannabis company in Maine.
Pursuant to the Amendment, Power REIT will fund the installation of a highly energy efficient onsite power generation and cooling system. Power REIT’s total capital commitment related to these improvements is approximately $3,500,000 which increases the straight-line annual rent by approximately $654,000 which represents an approximately 19% unleveraged core FFO yield.
Combined Heat and Power/Cogeneration
Combined Heat and Power (CHP), also known as cogeneration, is the production of electricity and thermal energy from a single energy source. In this case, the energy input is clean burning natural gas to run a reciprocating engine which includes emissions corrections for the exhaust. The Sweet Dirt property will benefit from installing a CHP system at its property whereby it will generate its own electricity and recover the heat produced as a byproduct of the electricity production and make that a usable energy source. This allows Sweet Dirt facility to offset running other equipment for heating the facility. In addition to the heat that will be used for heating the greenhouse, the project includes an absorption chiller which can create cooling from the heat produced by the cogeneration system through an evaporative process. A cogeneration system that incorporates an absorption chiller is often referred to as tri-generation since it creates three outputs from one energy input. CHP in the form of onsite generation can operate at a fuel conversion efficiency approaching 85% compared to the efficiency of a central power plant which typically has an electrical efficiency closer to 40% before factoring in significant efficiency losses associated with the distribution of power through the utility to the end user and the inability to capture and use thermal energy. As such, Sweet Dirt is taking a sustainable approach to meeting its energy needs.
David Lesser, Chairman and CEO of Power REIT commented, “These improvements to this greenhouse cultivation facility will allow Sweet Dirt to take their operations to the next level in an energy efficient manner. Power REIT has a significant focus on sustainability and cogeneration is a way to lower the overall carbon footprint of the greenhouse while also lowering its cost of operations and enhancing production yields. I have a significant background focused on sustainability and energy efficiency including the benefits of distributed generation of power in the form of cogeneration. A major component of our investment thesis is that greenhouses are a sustainable approach to the cultivation of certain crops. Incorporating tri-generation at the Sweet Dirt greenhouse directly supports this thesis.”
Sweet Dirt currently operates three retail locations with plans to open two more stores in Q2 2022. With regard to cultivation and manufacturing, Sweet Dirt operates the greenhouse facility owned by Power REIT. There are also plans for an extraction facility to open in Summer/Fall 2022. Sweet Dirt has grown significantly, now employing 130+ employees (305% YoY growth). After a strong 2021, generating a record year of revenues, Sweet Dirt captured a considerable portion of the total Maine adult-use market share with Maine’s only Certified Clean Adult Use cannabis.
Maine cannabis market
For the month of January 2022, the Maine Office of Marijuana Policy reported adult-use cannabis product sales of approximately $8.8 million representing 250% growth year over year. Smokable cannabis flower accounted for the majority of sales in 2021, but concentrated and infused products are steadily gaining market share representing consumer demand for more diverse form factors. Sweet Dirt is well positioned in the Maine market with extraction and manufacturing facilities and two more retail locations coming online in 2022.
Jim Henry, CEO of Sweet Dirt commented, “Leading in the cannabis industry in the state of Maine means focusing on not just financial success, but also on what’s best for Maine and Mainers. Adding this energy efficiency project to our cultivation and manufacturing campus will allow us to accelerate our growth in an environmentally friendly and cost-effective manner. We remain committed to becoming a large-scale producer of premium, high quality cannabis-related products to meet the growing demand in Maine. We evaluated many options for implementing this project and ultimately concluded that IntelliGen Power Systems was the best option for us.”
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