Replies to post #117821 on DD Support Board and Research Team

[bar1080]

Sales/Leasebacks are common even among private firms. IIPR's tenant -- so far its only tenant -- is Pharmacann which built this huge medical-use MJ cultivation/processing facility in NY.

Yes, the tenant will pay rent for many years but they should be able to make a fat immediate profit on the sale of the facility. In any event Pharmacann will turn a fixed asset into cash perhaps to put to more profitable use. Due to the the MJ use, Pharmacann would have a hard time borrowing on that facility in a conventional way, say a bank loan.

If I were to buy IIPR shares (most unlikely) I'd worry whether the lease payment was inflated. The seller might allow that in order to make a bigger profit on the sale, and the landlord might do that to induce the transaction.

An IIRP shareholder should wonder what that structure will be worth after the lease expires or the tenant goes belly up. What the heck is the market rate for Pharmacann's unique 128,000 sf structure? I'll guarantee that an appraiser won't find any local "comparables." No doubt it requires much heavier electric service than a conventional greenhouse. It has security features not required for growing normal crops. Legal and engineering fees must have been astronomical. Without MJ this facility isn't worth much.

I doubt anyone knows what this structure would be worth in forced sale. Few MJ investors will be asking that perfectly good question. Yale, Stanford and BRK would ask. A bank would ask. But not slobbering MJ stock players. And we know how that often works out.

[shajandr]

"There have been complaints about the high costs for a growing license plus capital requirements making it prohibitive for small timers to enter the industry. Buy isn't that the whole point of regulation in the first place?"

To a large degree, exactly so. More regulation favors large established companies and results in large companies having de facto oligopolies with high barriers to new entrants.

This is why large companies are often the biggest proponents for more regulations - it helps them to smother competition. A great example is to compare the computer and internet industries which had very little regulation to the petroleum refining and electric power generation industries which are highly regulated. The barriers to new entrants in the computer and internet industries are low, new products and services are rolled ~OUTT weekly - cost per unit of performance continues to decline dramatically. Contrast to the fact that the US has nott built a single new refinery since 1977 (Lake Charles, LA) and prices spike when our limited refining capacity goes into maintenance shutdowns, summer/winter switchovers, and accidents; refining is an oligopoly market, especially in the most highly regulated areas like California with consistently the most expensive gas outside of Hawaii). Or contrast to the electric power generation industry, where prices have been increasing substantially and there is little to no innovation or meaningful competition - just endless rate hikes in a monopoly marketplace.

As odd as it may seem to those on the Left, regulation is the tool of large corporations - they love to force regulations that conform to their abilities and detriment their existing or potential competitors. Recently, some have popularized the phrase 'regulatory capture' - and this is very true - large corporations use the governmental regulatory powers and authorities to do their bidding, by tailoring regulations which stifle competition and the need to innovate, giving them quasi-monopolies or oligopolies with pricing power and no sense of urgency to produce new or better products and services.

The same is happening in marijuana. The major problem with the 2016 California proposition that legalized marijuana is that the regulations will absolutely drive small and medium producers and sellers ~OUTT of the market. And the price of cannabis products will no doubt rise and rise as the industry becomes dominated by a few large players - who will lobby for more and more regulation.