IIP's Buying Spree Continues, Inks $33M Sale-Leaseback Deal With 4Front

4Front Ventures Corp. FFNT FFNTF confirmed Thursday it has finalized a sale-leaseback agreement with Innovative Industrial Properties Inc. IIPR valued at $33 million.

The Phoenix, Arizona-based cannabis company sold its cultivation and production facilities in Georgetown, Massachusetts and Olympia, Washington — some 181,000 square-feet of industrial space — to Innovative Industrial Properties, or IIP.

The proceeds will be utilized to pay the company’s total senior secured debt to affiliates of Gotham Green Partners.

IIP, a real estate investment trust and frequent sale-leaseback dealmaker, signed a long-term, triple-net lease agreement for each 4Front property.

4Front will continue to run the Massachusetts property as a facility for cannabis operations. Furthermore, it will sublease the Washington property to a cannabis license holder.

As part of this transaction, 4Front issued LI Lending LLC 12.14 million class A subordinate voting share purchase warrants with a price of $0.824.

The Georgetown property was previously a part of LI Lending’s collateral package.

"We are thrilled to enter into this new long-term real estate partnership with IIP," 4Front CEO Leo Gontmakher said in a statement.

Massachusetts and Washington — along with Illinois, California and Michigan — are 4Front's core markets, he explained.

The transaction strengthens 4Front's balance sheet and provides the company "greater flexibility to fund its growth initiatives" in these markets, Gontmakher added.

Paul Smithers, President and Chief Executive Officer of IIP, praised 4Front for its "strong footprint" and "proven ability to execute and deliver a wide variety of high-quality, consistent cannabis products on a large scale."

Given the constraint in the capital markets today, sale-leaseback have emerged as a tactic used by cannabis companies to build capital and expand company operations.

This year, San Diego-based IIP has been on the buy side of many sale-leaseback transactions, deploying capital to top cannabis players, including Columbia Care Inc. CCHWF, Holistic Industries Inc. and Green Thumb Industries GTBIF.

In July, New York-based Columbia Care sold its entire Vineland, New Jersey plant, totaling some 54,000-square-feet, to IIP for about $14 million. It agreed to manage the property as part of a long-term, triple-net lease agreement.

This was Columbia Care’s second sale-leaseback with IIP. Another deal occurred in Massachusetts. And in both states, it was able to get a significant amount of investment in the form of tenant improvement money to put toward expanding manufacturing facilities.

IIP had a similar setup with Holistic Industries. In September, Monson, Massachusetts-based Holistic sold a complex in New Castle, Pennsylvania to IIP for $8.9 million. The purchase included 7.4 acres, with 108,000-square-feet of industrial space.

IIP agreed to provide up to $6.4 million in reimbursements should Holistic make any improvements or renovations.

Companies like Holistic opt to buy real estate and hold onto the asset until it needs the capital. Or, it will find a friendly landlord upfront who will buy their property and then lease it back — a way to monetize it in order to provide more capital for the operating business. 

Chicago-based Green Thumb also sold a chunk of its real estate to IIP over the course of three sale-leasebacks. The most recent sale was based in Illinois and earned Green Thumb $50 million.

IIP went public on the New York Stock Exchange in 2016. In June, it raised $225 million through a public offering of its common stock. Including this week's 4Front acquisition, IIP's portfolio now has 66 properties comprising 5.4 million square feet across 17 states.

Benzinga editor Anthony Noto contributed to this report.