HerbFront, a cannabis real estate/zoning compliance tech company hailing from Chicago’s prestigious 1871 tech incubator, is expanding into the business of property management.
While still developing the scope of its mapping software, Herbfront is now growing a new arm: HF Capital, a real instate investment company that looks to partner with cannabis business owners by purchasing real estate for them.
The group launched its real estate mapping tool in 2015, an app which cross-references real estate listings with local zoning laws in order to help cannabis business owners find a new growing operation or dispensary location, and are hoping to be the Zillow of the marijuana industry.
“We have 142 cities/markets mapped across the country,” says Jake Meilach, a partner at HerbFront. Clients approach HerbFront with a mapping request, at which point “we build out predictive zoning maps, and they are predictive until legislation actually passes,” he explains. Once legislation is confirmed, city planners and zoning experts build out the official maps and they go live to their paid subscribers.
In working with cannabis business owners, it became clear to the group that the problem was much bigger than just finding the real estate. Limited access to traditional capital and banking can make closing large real estate deals hard for growers and dispensary owners looking to start out or expand. And leasing a space can be complicated by the fact that not all property owners are open to renting to cannabis business owners.
“The industry is kind of hamstrung,” Meilach says. “So we evolved into HF Capital.”
Rolled out two months ago, HF Capital is still in its infancy but still could give options for cash-strapped businesses. A business only needs to approach HF Capital with a property listing, a down payment (anywhere between $5,000-$10,000, depending on the case) and a three- to six-month lease deposit. HF Capital will negotiate a long-term lease deal (with or without a buy-back option) with the business owner before making the purchase, ensuring both parties get what they are looking for: Cannabis business owners get to keep more liquidity needed for start-up costs, and HF Capital investors get to safely participate in the marijuana industry by only dealing in the real estate.
This is similar to a Walgreen’s model, Meilach says. Walgreen’s does not own any of the properties it is located in, but rather works through preferred commercial renters.
Renting does have its shortfalls, however. While the rent is paid to HF Capital, the business owner still has to pay all utilities, maintenance, insurance and taxes. On top of that, HerbFront’s lease rates are much higher than market value (up to two and a half times regular lease rates), so doing homework and making sure the rent fits in the budget is key. But, as Meilach explains, renting “enables [business owners] to not bring in a bunch of outside equity to sit in the real estate or take on an incredibly expensive short-term loan.”
