Raising Cannabis Capital
Dan Humison from MJ Bulls Media interviews Victor Mitchell, CEO and Founder of Lead Funding.
Lead Funding is now providing cannabis real estate lending after 11 years of loaning over $500 million dollars in private lending to real estate developers. Mr. Mitchell was interviewed from the CWCB Expo in New York City and talks about lending money to cannabis companies to purchase real estate for dispensaries, grow facilities and extraction facilities.
Dan Humiston:
From MJ Bulls Media, it’s the Raising Cannabis Capital Show. I’m Dan Humiston, and on today’s show, the investor spotlight is shining on Victor Mitchell from Lead Funding. He will let us know how his real estate lending company is now making loans to cannabis companies to fund the purchase of their facilities. Victor, welcome to the show.
Victor Mitchell:
Well, thanks Dan. Thanks for having me.
Dan Humiston:
Well, we’re at the Cannabis World Congress and Business Expo in New York City, and it’s day two. Victor, you had your first day at the show. How’d it go yesterday?
Victor Mitchell:
Oh, it was phenomenal. Hundreds of people came through our booths. We met a lot of very interesting people and talked about a lot of interesting opportunities, and hopefully we’ll be able to make some important loans.
Dan Humiston:
Yeah, this industry is growing so fast that we need to. Well, Lead Funding, your roots are in real estate investment. I’m just reading from your website. You’ve provided private loans, to date, over $500 million in loans to real estate developers. That’s quite an accomplishment.
Victor Mitchell:
Yes. We’ve done quite a bit. We’ve been in business 11 years. We make real estate-backed loans to the cannabis industry. We’ll lend on just about any type of dispensary or a grow house. We are one of the few large private lenders in the country to do so, and we have a whole team that we can generally underwrite in a matter of a few weeks, or even a few days, and fund most cannabis projects that meet our underwriting criteria.
Dan Humiston:
I think what’s so neat about this and what you’re doing is that you’re bringing your skillset into this industry and your expertise and your experience in an unrelated industry, real estate, and now you’re providing all this expertise, which is so needed. That’s really exciting to me that somebody at your level, your experience level, found this industry that interesting. Now, you’re based in Colorado. Is that correct?
Victor Mitchell:
We can lend to cannabis operators anywhere the country, but it’s also, Dan, worth talking about the fact that most cannabis operators, especially dispensary’s across the country, are forced to lease. They can’t even have access to capital to purchase their own buildings, and you have so many landlords playing games with them and jacking up the rents and throwing them out, and what have you. So it’s just an inherent amount of risk in leasing in this industry. It’s like the wild west, the cannabis industry today. So we encourage many of our operators to try to buy their buildings, and we’re a source of capital to provide them the real estate financing when they’re ready to buy a building.
Dan Humiston:
Which is so needed. Like you said, I know a lot of grow facilities specifically, they’ve just been expanding and expanding and expanding and putting a ton of capital improvements into their facilities for somebody else. Now they’re saying, “Well, I’d love an opportunity to buy my own building,” but they can’t get any traditional lending. Explain why that is still not an option for people to get loans for anything in the cannabis industry.
Victor Mitchell::
It’s quite simple. The Federal Reserve still looks at cannabis as a controlled substance, so it’s illegal, even though more than 30 states have legalized marijuana in one form or another. So there’s a contradiction between the federal and state laws and, really, the cannabis operators and owners have been locked out of any type of traditional bank financing. So we fill this niche, providing real estate-backed loans somewhere to a bank, except we don’t have any of the red tape that a bank has. Our rates are slightly higher than a traditional bank, but we can generally lend at a higher leverage point. We can make decisions in-house and we understand and appreciate the cannabis operators. We have a great amount of respect for what they’re doing. I think it’s exciting what they’re doing and I think, at some point in time in the coming future, we believe that it will become legal to bank and to finance properties through traditional institutions. But, in the interim, we’re providing an important niche.
Dan Humiston:
Yeah, and I love on the your website, it talked about how quickly you turn around loans. This to me just blows my mind. In my past life, I did a lot of loans through SBA loans, and how long their process was! Give an idea of how quickly you can turn something around.
Victor Mitchell:
Well, we have a proprietary valuation tool that we use internally, but on most cannabis loans or unique properties, we do require an outside appraiser, that’s the longest delay in the whole thing. As soon as we can get an appraisal done in a couple of weeks, we can fund within a couple of weeks. If we can use our own valuation tool, we can fund in a matter of just a few days. 80% of our loans to date are funded within one week, but our cannabis loans usually take two to three weeks to fund. Once we’ve approved the borrower, we give them a term sheet so they feel comfortable. They usually pay a modest deposit. We order an appraisal and we basically underwrite and site-visit the property, so it’s a very fast, efficient process. We’re actually looking at two large transactions right now. We’re looking at a $4 million loan and a $6 million loan right now. We’re hoping to close on two cannabis operators, one in Michigan, and the other in Colorado over the next 30 days. We lend in all 50 states.
Dan Humiston:
That was my next question, if you can lend in all 50 states.
Victor Mitchell:
Absolutely. We can lend to licensed cannabis operators in all 50 states and we’re looking at opportunities in the Northeast since we’re here at the Expo. We’re also looking at opportunities in the Midwest. Most of our loans are in our home state, Colorado, but we are national and we’re really putting a lot of energy into the Northeast.
Dan Humiston:
I want to take a quick break to thank all of our Raising Cannabis Capitol listeners and to remind you that you can support the show by subscribing to MJ Bulls Premium.
Dan Humiston:
Let’s talk about interest rates. I know you touched on it. What can people expect?
Victor Mitchell:
12% is our standard rate. We provide loan terms one, two or three year, but unlike a traditional loan, our loans don’t have any amortization. So, the borrowers just pay interest only on the loans. There are no prepayment penalties, so it’s an interest-only loan with more or less a bridge loan until they can get long-term, inexpensive debt capital when banking eventually becomes legal.
Dan Humiston:
Okay, so it’s not a balloon payment at the end.
Victor Mitchell:
It’s a balloon payment at the end of their term and they don’t make principal payments during the term of the note.
Dan Humiston:
Okay. All right. If a company were interested in a real estate deal, they would need the facility that they want to buy, and that’s what you use to back the loan? The collateral from the real estate is how you back the loan?
Victor Mitchell:
They could be buying a facility or they could already currently own the facility, or be seeking financing for ground up construction. Many operators who purchase dispensary’s and grow houses have actually paid cash. They often have no debt on their properties because they couldn’t get a loan. So there’s a great number of those people. We’ll do a cash-out refinance so they can have more capital to grow their business. Or they’re in the process of buying an existing property. We just did a deal recently for a ground-up grow facility that was basically raw dirt. They got it entitled, they got approved and licensed through the city, and now they’re going vertical and building a custom grow house. So we do all new construction, existing buildings, any type of real estate-backed loan for the cannabis industry.
Dan Humiston:
Okay. In a deal like that, would you need to see projections and financials, or just base the entire deal under the property?
Victor Mitchell:
We’re basically an asset-based lender, so we really look at four or five different things. We obviously have to be comfortable with the property. We look at the borrower’s FICO score, we look at their liquidity, we look at their net worth and we look at their experience. But, we’re not basing on traditional cap rates. We don’t lend on cap rates or other traditional income-based approaches, because we’re an asset based lender. We don’t have the red tape that a bank has, our loans are not going to be pledged or signed to some hedge fund or some institution. We carry everything inside. We handle all construction draws internally. We service the notes internally and all the payoffs. Everything is done in our own operation. We’re fully vertically integrated.
Dan Humiston:
It’s really important that we want to emphasize that in this message, is that you’re not going to turn around and sell this loan.
Victor Mitchell:
That’s correct. You’re paying 12%, so it’s obviously a higher than a traditional bank, but you get a lot more services. You get a higher debt ratio, you’re dealing with very good customer service. I’m most proud to tell you that we’ve been in business 11 years and we’ve never had a customer service complaint. We have a perfect rating, an A plus rating from the Better Business Bureau, a perfect rating from the US Chamber of Commerce. 80% of our loans come from existing customers, so they’ll pay off a loan and get a new loan with us. So we’re very proud of our reputation. We have about 500 clients currently mostly across the six primary states that we’re lending in.
Dan Humiston:
Okay. Well, we’ve been speaking with Victor Mitchell from Lead Funding, and we have all of his contact information on the MJ Bulls website. Victor, thanks for being on the show today. This has been really informative.
Victor Mitchell:
Well, thanks Dan, we look forward to hearing from some of your listeners.
Dan Humiston:
I’m sure you’re going to be hear from a lot of them. This is a good deal.
Victor Mitchell:
Have a great day and enjoy the show.
Dan Humiston: