ATLANTA — UC Asset LP acquired a $3-million cannabis property, which includes 1,550 square feet of office space and 16,500 square feet of cannabis cultivation space. UC Asset acquired 50% of the property in May 2023, paying $1 million in cash and issuing $600,000 in preferred shares to the then-owner. The company acquired the remaining 50% for $1.5 million. An independent licensed appraiser recently valued the property at a replacement cost of $3.4 million, which excludes all the equipment for cannabis cultivation.
None of the $1.5 million consideration for the deal was paid in cash at closing. Instead, UC Asset issued preferred shares with a face value of $1 million to the seller, traded $250,000 in equity, and secured $250,000 in financing with assistance from a third party.
“With the exception of $250,000 in financing, the remaing $1.25 million is de facto an investment by the seller in our company,” said Larry Wu, founder of UC Asset. “Since the seller is also a major owner of the current tenant, this can be interpreted as our tenant has become a strategic investor in UC Asset.”
A prevalent challenge in cannabis property investment, Wu said, is the high default rate among tenants, stemming from the high-risk-high-reward nature of an emerging industry. When growers face difficulties, they may default on their lease or even vacate the property, resulting in financial losses for property investors. To mitigate this risk, UC Asset adopted a strategy of forming long-term stratetic partnerships with tenants. A key component of the approach is encouraging tenants to become strategic investors in UC Asset.
As part of the deal, the current tenant entered into a five-year double-net lease with UC Asset, increasing the monthly rent from $12,000 to $13,000 immediately and to $16,000 at the beginning of next year.
“This deal is part of our strategic plan to expand our investment in cannabis properties,” said Wu. “Among our portfolio properties, cannabis properties currently yield the highest return on equity (ROE) and have the most promising potential for appreciation in the coming years, especially if change in federal regulations will allow commercial banks to provide mortgage loans to cannabis property owners.”
In February, UC Asset announced plans to launch a secondary public offering (SPO) via Regulation A+, aiming to raise a maximum of $10 million. The majority of funds raised through the planned SPO will be invested in cannabis properties.
Following the acquisition, UC Asset’s total real estate portfolio will increase to approximately $7 million, based on historic cost, including $3 million in cannabis properties. This, according to Wu, will strengthen the company’s position for a successful SPO.
UC Asset is one of only four U.S. public companies that hold a significant portion of their portfolio in cannabis properties.
The property is a cannabis growing facility with fully computerized environment control and has the capacity to host full-cycle cannabis production, from creating clones/genetics to extracting cannabinoids.
About UC Asset LP
UC Asset LP is a limited partnership formed for the purpose of investing in real estate with innovative strategies.
