Pelorus Capital Group Achieves Historic Milestone with First Cannabis-Linked Real Estate Securitization

LOS ANGELES– In a groundbreaking announcement today, Pelorus Capital Group, a prominent player in the specialty-use cannabis real estate lending market, has successfully priced the first-ever securitization for cannabis-linked real estate. Utilizing commercial mortgage-backed securities (CMBS), a $1 trillion asset class, Pelorus has achieved a precedent-setting feat in the industry, according to private global asset manager Lord Abbett.

CMBS is a financial instrument that represents a pool of commercial real estate loans. It involves bundling multiple individual mortgage loans secured by income-producing properties and offering them as a single investment product to investors. These mortgage pools are transferred to a special purpose vehicle (SPV), a separate legal entity established solely for issuing the CMBS. Bonds or notes are issued to investors by the SPV, with the underlying commercial mortgage loans’ cash flows acting as collateral for these bonds.

Notably, Pelorus Capital Group securitized a portfolio of pooled cannabis-linked mortgage-backed loans, marking a pioneering achievement in North America where cannabis remains classified as a Schedule 1 narcotic.

The successful securitization involved Pelorus retaining a third of the $70 million offering while selling $45 million of bonds to various institutional investors and hedge funds. The appeal of the offering was driven by the attractive double-digit yield, estimated to be in the 11% range. The issuance of bonds is expected to have a positive impact on equity holders of The Pelorus Fund, as yields generated from CMBS will flow through to the Fund. The single-tranche securitization is floating rate and tied to the one-month Secured Overnight Financing Rate (SOFR).

SOFR serves as a reference rate for financial transactions and is intended to replace the London Interbank Offered Rate (LIBOR) for various financial contracts. The one-month SOFR represents the average cost of borrowing in the overnight market for one month, making it suitable for financial products with monthly interest rate resets.

Travis Goad, Managing Partner of Pelorus Capital Group, expressed optimism about future bond issuance: “We expect to be back in the market later this year with additional securitization issuances and look forward to further demonstrating our proven ability to provide meaningful returns to institutional investors.”

This historic achievement comes in the wake of another significant milestone for Pelorus Capital Group. On May 15, the company’s private mortgage real estate investment trust subsidiary, Pelorus Fund REIT, LLC, successfully secured an A rating from Egan-Jones Rating Company for $50 million in aggregate principal amount of 7% senior secured notes due September 26, 2026. This A rating, considered to be in the upper-medium grade category, remains the highest rating ever issued by a credit agency in the cannabis industry. The rating reflects the company’s robust measures to secure the Notes and its strengthening balance sheet, reflecting a relatively low credit risk.

Pelorus Capital Group continues to make pioneering strides in the cannabis industry, reaffirming its position as a leader in the specialty-use cannabis real estate lending market.