This REIT's Boost In Bond Rating Opens Cannabis Sector Up To More Investors

The recent credit rating boost that Pelorus Capital Group received on $50 million in bonds issued by its private mortgage real estate investment trust (REIT) is expected to give cannabis companies increased access to institutional investors.

Last week, the Egan-Jones Rating Co. — the only major debt rating firm that rates cannabis companies’ debt — gave the Pelorus’s 7% senior secured notes an A rating, the highest rating issued in the cannabis industry so far.

“This indicates the further maturation of the markets for cannabis,” said Travis Goad, managing partner at Pelorus, which has specialized in lending to the cannabis industry since 2016. “Because of the conflict between state and federal policies, capital markets aren’t open for groups like ours in the sense that they are for traditional mortgage REITs.”

Pelorus issued the previously unsecured notes in 2021 and received a BBB+ rating from Egan-Jones. The notes were the first issued by a privately held mortgage REIT to receive what was then the highest credit rating achieved by an issuer operating in the cannabis industry.

“This benefits cannabis companies because there’s more capital to lend to them, and it reduces our cost for capital,” Pelorus President Rob Sechrist said. “The savings flows through to the end user.”

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Pelorus wants to change the commercial real estate lending landscape in the cannabis sector. So far, it’s completed 73 commercial real estate loan transactions and deployed about $545 million in loan proceeds to cannabis businesses and real estate owners, comprising nearly 4.5 million square feet in 10 states.

Pelorus can fund approved construction draws for reimbursement in an average of one to three days and address financing of the entire project with a single agreement. That helps stabilize cash flow for its clients so they can focus on their core business goals. 

The elevated rating means the markets are starting to open for cannabis companies, which gives them a bigger universe of investors. It also enables investors who have certain ratings they can’t go below to invest in cannabis companies. 

“The entire cannabis market lacks institutional investors,” Sechrist said. “We’re trying to increase the universe of investors that can start participating here. You can’t drive real capital into the sector until you access the capital markets.”

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