A New Financing Tool Is Now Available For Cannabis Businesses: Introducing Commercial Property Assessed Clean Energy (C-PACE)

The state-by-state nature of legalization in the cannabis industry combined with the continued growth in new emerging legalized states across the US, has created a sticky situation when it comes to investing in and lending to the cannabis industry.

Commercial Property Assessed Clean Energy (C-PACE or PACE) —a financing medium widely used for traditional manufacturers, energy-efficient facilities, and renewable energy build-outs— is now available to authorized properties in the cannabis industry.

Quite underutilized in this industry, C-PACE financing recently became available for properties is in a state that has passed the legislation that empowers local municipalities to provide C-PACE as a funding tool.

PACE financing is repaid as an assessment on the property’s regular tax bill and is processed the same way as other local public benefit assessments (sidewalks, sewers, etc.) have been for decades.

Until federal legalization occurs and SAFE banking passes, FDIC-insured banks and traditional investors are prohibited from financing cannabis projects and companies.

“Many financing options that do exist tend to come with double-digit interest rates,” warned Upwise Capital Managing Partner Joe Lustberg. “Even the largest multistate operators are taking on capital with interest rates of 12-15%.”

Upwise Capital a full-service debt financing marketplace with multiple financing options for cannabis operators and over 200 capital sources that lends to the cannabis industry, including 38 banks, advises that C-PACE is the top choice when looking for financial lending opportunities in the cannabis industry.

“When operators come to us and say 12% is too expensive, we move on,” Lustberg explained, regarding potential investments his firm looks at. “There is a cost associated with being a cannabis operator. Until SAFE banking passes and federal legalization comes, this is a cost you’ll be looking at for the foreseeable future.” PACE financing offers single digit interest rates to energy efficient cannabis property owners in this volatile rate environment.

How C-PACE Works

Typical terms on a C-PACE-funded cannabis transaction are up to 100% financing based on 25% Loan to Value (LTV) on a stabilized as completed cannabis appraisal of the facility, fixed for a term up to 30 years with interest rates ranging from 7 to 9%. With regard to cannabis properties, C-PACE offers a long-term fixed rate for energy-qualified improvements with the collection of the debt repayment through a special assessment of the property’s tax bill.

C-PACE funds provide upfront capital with 100% financing for qualified energy improvements, often with terms ranging from 20 to 30 years depending on the state and local PACE program. The resulting annual energy savings and reduction in operating and maintenance costs typically exceed the amount of the annual assessment payment, so the property owners are immediately cash flow positive.

PACE can cover 100% of a project’s hard and soft costs with no out-of-pocket expenses. Therefore, there’s an increase in working capital dollars that can be spent on other CAPEX, OPEX, capital projects, budgetary expenses, or a business expansion.

Local governments are pro-PACE because it’s an Economic Development initiative that lowers the cost of business in their community and creates energy efficiency in the municipality.

Additionally, it encourages new business owners to invest in energy efficient initiatives in the area and creates jobs using the local workforce. PACE projects also have a positive impact on air quality and the environment, creating a healthier, more liveable community.

PACE-enabling legislation is active in 38 states plus D.C., and PACE programs are now active (launched and operating) in 30 states plus D.C. Residential PACE is currently offered in California, Florida, and Missouri.

“Upwise Capital is proficient at securing C-PACE transactions funded for cannabis property owners,” Lustberg said. “We offer our clients the most energy-efficient and cost-effective development strategies when building out their cultivation, manufacturing, or lab facilities.”