How a California company is buying up marijuana grow centers in Illinois — without a cultivation license

Three of the first seven recreational growing facilities licensed by the state will soon be owned by a publicly traded real estate investor with hundreds of millions in assets.

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Innovative Industrial Properties bought this 75,000-square-feet grow facility in downstate Barry and leases it to a Massachusetts-based marijuana grower.

Innovative Industrial Properties bought this 75,000-square-feet grow facility in downstate Barry in December and now leases it to a Massachusetts-based pot firm.

Revolution Enterprises

Seven of Illinois’ existing marijuana cultivation centers were granted licenses to grow recreational pot, but the big winner could be a publicly traded real estate firm that owns one of the facilities and is in the process of acquiring two more. 

Krista Lisser, a spokeswoman for the Illinois Department of Agriculture, confirmed the state began issuing the licenses on Thursday after four firms applied and paid a $100,000 fee. Three of the licenses were issued to Cresco Labs, two more went to Pharmacann and individual permits were awarded to Ascend Wellness and Columbia Care. 

The newly-licensed Ascend facility in Barry is owned by Innovative Industrial Properties, a San Diego-based real estate investment trust that buys and leases cannabis grow centers. On Friday, Cresco announced it had reached a deal to sell two of its three Illinois cultivation centers to the firm.

While companies in Illinois can hold only three licenses to grow cannabis, IIP isn’t bound by the same rules because the firm simply serves as a landlord, according to John Teefey, chief legal counsel for department of agriculture. Lisser further clarified that IIP “is not on a permit and/or a license, so they are not an owner” under the definition of the law.

That means IIP could feasibly continue to buy up cultivation centers across the state and lease them to licensed operators. There are currently 21 grow facilities in the state.

Cresco, a multistate cannabis firm based in River North, plans to sell IIP its grow centers in Joliet and Kankakee. After finalizing the deal — which is valued at $46.3 million and includes funding for improvements at the Kankakee property — Cresco will lease them back and continue to operate the facilities.

Cresco spokesman Jason Erkes said renovations are also underway at the firm’s facility in Lincoln, which isn’t included in the deal. Cresco CEO and co-founder Charlie Bachtell said the agreement provides an infusion of capital that “will support the expansion of our Illinois operations in preparation for the legalization of adult-use cannabis on January 1, 2020.”

IIP’s financial interest in Illinois’ legal pot industry dates to Dec. 21, when it paid $25 million in a similar deal to buy Ascend’s Barry facility and cover renovation costs before leasing it back to the Massachusetts-based company. Earlier this month, IIP amended its lease with Ascend and offered up $8 million more in funding to support expansion efforts at the Barry facility.

The real estate firm also owns another Ascend-run grow facility in Michigan.

IIP’s reach also extends to Pharmacann, another multistate company based in the Loop, that received licenses to grow recreational pot at its properties in Hillcrest and Dwight. Neither of those facilities are owned by IIP, but Pharmacann is already leasing grow centers from the firm in four other states.

Jeremy Unruh, a spokesman for Pharmacann, left the door open to entering into a similar agreement with IIP in Illinois. 

“I cannot say for sure that we’re going to do a deal for one of our Illinois cultivation centers, but it’s entirely possible,” Unruh said. 

The final recreational grow license went to the Columbia Care facility in Aurora, which has no ties to IIP. 

Paul Smithers, IIP’s president and chief executive officer, declined to comment on the Cresco acquisition because the deal is still pending.

But in July, Smithers said the company was “bullish on the Illinois market” and would welcome new opportunities in a state he thinks “has the opportunity to be the blueprint for medical states transitioning to add adult-use programs.”

IIP has gotten money from high-powered investors that include one of the world’s largest asset managers, BlackRock, and investment banking giant Goldman Sachs. Since the firm was listed on the New York Stock Exchange in 2016, its stock price has risen from $18.45 on its first day of trading to over $92 on Monday.

As of June 30, IIP’s assets were valued at $430 million, according to a recent SEC filing.

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