Two LI companies see pot of gold in cannabis greenhouses

Two publicly traded Long Island companies have joined forces to pursue the cannabis greenhouse market.

One of companies, Power REIT, a real estate investment trust, in recent months has acquired properties in Colorado, Oklahoma, Maine and Michigan to be used in marijuana cultivation.

The other, Millennium Investment & Acquisition Co. Inc., has initiated cannabis cultivation operations at two of the Power REIT sites in Colorado and Oklahoma with plans for further expansion.

Both companies share the same address in Old Bethpage and the same chairman and chief executive, David H. Lesser.

Lesser said that many cannabis growers use warehouses and other indoor sites that require expensive grow lights and heating and ventilation equipment.

"To me, the clear sustainable business solution is to grow in a greenhouse," he said. "It costs less to operate. You're able to produce at a lower cost per pound."

Lesser said that he expects the price of cannabis to decline as legalization proponents make progress and supply expands. To reflect that expectation, he said, Power REIT signs tenants to front-loaded leases with higher rents in the early years.

"We think that's a smarter structure," Lesser said.

Although New York, Colorado and other states have legalized recreational marijuana use, the drug remains illegal under federal law.

Those federal prohibitions make most U.S. banks, as regulated financial institutions, loathe to provide loans and other services to cannabis companies.

Millennium said in a statement that the "inefficient availability of capital" in the cannabis industry "presents an opportunity."

The company said its "strategic affiliation" with Power REIT, which finances greenhouse operations, provides ready access to capital for its cultivation business.

REITs own, manage or finance income producing properties and pass through at least 90% of their taxable income to shareholders.

Alon Y. Kapen, a securities lawyer at Uniondale-based Farrell Fritz P.C., said the liberalization of state marijuana laws has created an opening for the companies.

"It's probably a positive move for shareholders," he said.

Power REIT began investing in greenhouse agriculture in July 2019 with the purchase of a site in Colorado. The company continues with its previous businesses of leasing railroad lines to Norfolk Southern Corp. and leasing land used for utilities' solar farms.

Among Power REIT's recent cannabis deals:

• In May, Power REIT agreed to acquire a 66-acre property with a 522,530-square-foot greenhouse that the company said "will be Michigan's largest greenhouse cannabis cultivation and processing facility" for about $18.5 million.
• Also in May, Power REIT announced it had acquired a 35-acre property in Walsenburg, Colorado, in a $3.9 million deal. Plans call for the company to increase greenhouse space to about 102,800 square feet. Millennium affiliate Walsenburg Cannabis LLC will grow cannabis at the site under a 20-year lease.
• In June, the company acquired a 9.35-acre property in Vinita, Oklahoma, for $2.65 million from "an undercapitalized operator." The deal calls for Power REIT to fund the renovation of 3,000 square feet of office space, 40,000 square feet of greenhouse space and 100,000 square feet of outdoor growing area. Vinita Cannabis LLC, majority owned by Millennium, will cultivate cannabis at the facility under a 20-year lease.

Lesser said he is continuing to assess opportunities for additional deals in states that have legalized medical or recreational cannabis.

"We're looking at a bunch of states," he said.

By Ken Schachter

kenneth.schachter@newsday.comkschach

Ken Schachter covers corporate news, including technology and aerospace, and other business topics for Newsday. He has also worked at The Miami Herald and The Jerusalem Post.