Ascent Industries’ (ASNT.C) new partnership with real estate firm Green Sage grants both parties first rights to their partner’s properties and helps circumvent traditional means of financing cannabis companies.
The partnership’s parameters are twofold:
- Ascent Industries grants Green Sage first rights to both acquire and capitalize the real estate properties it owns, intends to acquire or intends to lease for its businesses.
- Green Sage shall provide Ascent Industries with first rights to lease space—whether upcoming or currently available—at any of the commercial properties owned or to be acquired by Green Sage.
“The relationship with Green Sage accelerates our ability to finance our capital projects throughout North America at select premier locations. The combination of alternative financing, real estate expertise and cannabis-specific knowledge that Green Sage provides supports our business strategy in expanding our global footprint through a multi-location rollout,” Ascent Industries’ CFO, Blair Jordan said.
The partnership with Green Sage is also non-dilutive, a key component in the agreement which Jordan said enhances his company’s “ability to finance [their] capital projects throughout North America at select premier locations.”
Ascent Industries believes its partnership with a company with large-scale property holdings in the US will help accelerate its own growth and reduce capital costs incurred from expansion.
For their troubles, Green Sage will gain access to cannabis-related real estate opportunities as its new partner continues to grow, including opportunities in Canada. Both companies will pool their resources and expertise going forward.
Green Sage has two properties in its portfolio. Located next door to each other in Oakland, California, the properties are a 162,000 square foot cannery and a 279,000 square foot tinnery. Both have been outfitted to facilitate cannabis cultivation, manufacturing and research.
“As strategic real estate specialists for the legal cannabis industry, we are pleased to work with a company with the calibre of management and global footprint of Ascent,” said Ken Greer, Green Sage’s managing director.
Cash-strapped cannabis companies
Besides a general collaboration between two companies from adjacent sectors in the cannabis industry, what undergirds this agreement is an understanding by both parties about the precariousness of companies in the cannabis business.
There is limited traditional financing for capital intensive cannabis production and manufacturing outside the public markets. Ascent’s management believes that shareholders will be served well through this Alliance by allowing a specialist asset finance firm to effectively outsource the ownership of key assets, thereby allowing Ascent to capture the value of the assets while avoiding the long-term costs of ownership and dilution to shareholders compared to funding through equity.
In January 2018, Vice News detailed Philippe Depault’s difficulty in acquiring loan for his fledgeling cannabis-accessory company, Maïtri.
He said bankers don’t always see a difference between legitimate businesses and the black market, at least not for small companies like his.
Aurora Cannabis (ACB.T) signed a loan with the Bank of Montreal (BMO.T) in February for up to $250 million, an amount which Aurora Cannabis’ CEO called the largest traditional debt facility the industry had ever seen.
For small companies like Maïtri, however, it’s another story. Depault told Vice News that his bank refused his request six times before he was finally granted approval to open a business account.
Before approving a loan, BMO puts applications by cannabis companies through what it calls an enhanced due diligence process.
This involves an appraisal of a company’s quality and what it calls “reputational risk,” or the possibility of a Canadian cannabis company extending its business to the US.
Toronto-Dominion Bank’s (TD.T) CEO, Bharat Masrani echoed this sentiment, saying that prospective clients should not have US exposure.
Since both Ascent Industries and Green Sage currently have US interests, traditional means of financing their operations through other means such as their partnership.
Both companies will provide updates on prospective commercial real estate targets throughout 2018 and 2019 as they are discovered. Areas of interest include Canada, the US and Europe.
Full disclosure: Ascent Industries is an Equity Guru marketing client and we own stock.