How MJ REIT Finances Cannabis Real Estate When Traditional Banks Say No | Chris Reece, CFA

Chris Reece (00:00)
When they hear the word cannabis, they associate that word with risk. And they’re not wrong, specific to cannabis operators. You know, if you did have exposure to cannabis, it’s most likely one of two ways. You know, three or four years ago where everybody thought it was gonna be legalized, you probably bought Tilray or one of the other large multi-state operators at $90 a share and now it’s trading at five, and you dislike cannabis.

Alternatively, your brother-in-law opened up a cannabis dispensary and you put 100 grand in and he went belly up and you lost 100 grand.

Meghan Escobar (02:05)
Hello, everyone. Welcome back to Real Estate Pros Podcast, hosted by Investor Fuel. I’m your host today, Meghan Escobar. And I have the pleasure of sitting down with somebody who I’m so excited to bring on to the show. It’s a little bit outside-of-the-box conversation that we’re going to be having today, but I think that the audience may walk away with some great insights on your journey and the way that you’ve built your business. It’s such an incredible story. And I’m so excited for you to be able to be on the show and share it with us today, Chris. Thank you for taking the time to be here.

Chris Reece (02:37)
Meghan, thank you so much. Really excited to spend some time talking a little bit more about what we do, and hopefully it will provide some value to your listeners.

Meghan Escobar (02:47)
Absolutely. So Chris Reece, folks, is the founder and CEO of an incredible fund called MJ REIT. And I’m gonna let you take the mic here. So those of you who might not be familiar with your name or what MJ REIT is, can you give us a thirty-thousand-foot view of what the focus is with this fund and what markets that you’re operating in?

Chris Reece (03:08)
Yeah, 100%. And so I identified an opportunity back in 2022 within a broader real estate space that was focused within cannabis. And so just to start where you think about MJ, I came up with the name—not me exactly, but it stands for Mary Jane. The initials—Mary Jane is synonymous with cannabis. So I took that and started MJ REIT back in September of 2022. So we just finished our 47th month of performance.

And all we do is we provide financing on a piece of commercial real estate whereby you, the owner of that real estate, have a cannabis tenant. And because of that cannabis tenant, you can’t get a mortgage at a bank. Simple, but it’s also an area of the market that continues to be one of the most rapid, rapidly growing areas of the US economy. And it’s doing so without traditional access to financing.

Meghan Escobar (04:00)
That’s incredible. And one thing that caught my attention during our discovery conversation, if you will, is when I asked you about some of the strengths of the company, you started with sharing your experience. You know, somebody who has three decades in fund management. You know, I think it’s safe to say that you have some expertise in the fund area. Can you talk to us a little bit about why somebody would want to invest in this fund and what the potential is behind it?

Chris Reece (04:34)
Certainly, and I think one of the strengths that we do bring to the table is just—and you hit on it—experience. And so I’ve been in the institutional asset management space for a little more than 30 years, and with that, the first 15 spent on the public side, the last 15 on the private market side. And I identified the opportunity because when I first got started, I worked for Vanguard and we built what we thought were diversified portfolios for large institutional clients. And then the tech crash happened in 2000. Diversification went out the window. Global correlations went to one. And I realized there had to be a better way than just investing in the public markets. And so I joined a firm back in 2010, essentially launching the first private business development company or BDC. We had partnered with Blackstone at the time to raise a bunch of capital. I’m sorry for that. A bunch of capital—

Meghan Escobar (05:29)
Right here.

Chris Reece (05:30)
—a bunch of capital in the market.

And then ultimately, I took the strengths of the BDCs and rolled them up into MJ REIT. So you think about what we do: all we do, as I mentioned, is finance commercial real estate whereby you, the owner, have a cannabis tenant. For our investors, I wanted to make it as investor-friendly as possible. And what that means is we have monthly purchases, we have monthly redemptions, we have monthly distributions that are paid, and we get valued on a monthly basis. And so you roll that all together: this is not a closed-end strategy where you make an investment and five to seven years down the road, you hope that we’re successful and you get your money back. It’s up to all of our investors to create their own maturity. You come into the fund for a year or two years, three years, and then three years later you say, “Hey, listen, Chris, there’s another investment opportunity. I need to cut my position in half,” which is fine. Then you just simply redeem your shares and get your capital and invest elsewhere. But our main focus is on price stability. So we want to maintain a stable fund price. And then secondarily, we want to exceed our 10% annualized distribution, which we pay on a monthly basis. And Meghan, happy to report that this month, July, we finished our 47th month.

And every one of those months, we’ve paid at least a 10% or greater annualized distribution. So on the low side, 10.2%, and on the high side, 16.67%. And that—and sorry to go on here—even though past performance is not indicative of future results, since we launched, we have an annualized return net of fees and expenses at 11.01%.

Meghan Escobar (08:01)
Yeah, I appreciate that you did go on there, to be honest with you, Chris, because somebody who, like myself, has a little bit of a background in finance, it’s almost unheard of for a fund to be born and to have a consistent positive rate of return.

Chris Reece (08:18)
Yeah, yeah, a hundred percent. And that’s, you know, what we do is slightly different than a lot of other funds in the marketplace. And because of the niche area—and this is where the ecosystem within the cannabis space comes into play—you have a tremendous amount of demand for capital and you have a scarcity of capital to fund that demand. And that’s where we stepped in. And that’s the opportunity that I unraveled back in 2022. And we’ve been true and consistent with our allocation of capital, and our investors have benefited from the conservative underwriting and the stability of principal, along with the consistent monthly income.

Meghan Escobar (08:54)
Yeah. Incredible. And I made a statement earlier and I was like, genius, right? Because I mean, you created a loophole for individuals who want to get their cannabis business legitimized, and as we know, there’s so much monetary opportunity in that industry. And because of the restrictions of federal regulations and not being able to go to a traditional bank, it’s like—boom, lightbulb moment, right? I mean—

Chris Reece (09:23)
Well, and a lot of people, when they hear the word cannabis, associate that word with risk. And they’re not wrong, specific to cannabis operators. You know, if you did have exposure to cannabis, it’s most likely one of two ways. You know, three or four years ago where everybody thought it was gonna be legalized, you probably bought Tilray or one of the other large multi-state operators at $90 a share and now it’s trading at five and you dislike cannabis.

Alternatively, your brother-in-law opened up a cannabis dispensary and you put 100 grand in and he went belly up and you lost 100 grand. So, generally speaking, people don’t have a good taste for the cannabis markets overall. But it’s important to delineate: we’re not providing financing directly to a cannabis operator. We’re simply financing a piece of commercial real estate, and that hard asset allows us downside protection if or should our tenant go belly up, we essentially would take over, retenant that property, and continue to pay our investors our interest.

Meghan Escobar (10:59)
Amazing stuff. Amazing stuff, folks. And you know, you’ve been in the game for a while, so I’m sure you have some stories that you could tell us, right? But one thing that I always like to bring up is let’s share an experience that you might have gone through where you had to pivot fast or a deal went sideways. And the reason I think this is important is because often people see the highlights of success—and you’re on a winning streak here, Chris. So let’s talk a little bit about one of those experiences that you may have had.

Chris Reece (11:29)
Yeah, you know, it’s interesting because we pour a lot of hard work—and most investment managers do—but we really focused on downside protection within the portfolio. And so that’s allowed us to stay clear of defaults in the portfolio in an otherwise volatile credit market. And the way we do that is—and this is what I was explaining earlier, Meghan—let me say we go out and you and I apply to the state of California to cultivate cannabis. We get approved for that license, and now we need a building. And so we buy a two-million-dollar industrial building. Well, in order for us to retrofit that building for cultivation, we may need to put another six million into that. Think about the irrigation, lighting, HVAC, high-tech security. And so now in our mind, that building’s worth eight million dollars because we bought it for two and we added six to it. To MJ REIT, we assume that cannabis goes away in every transaction. So I assume if I need to re-tenant that property with a standard industrial tenant, they’re not gonna pay $300 a square foot or $8 million for the property because they don’t need 14 air conditioners and state-of-the-art security, and they don’t wanna pay for it. So we would come in and look at that property at two or maybe two and a quarter million, and we would underwrite a senior mortgage at about 75% LTV on that lower valuation. And here’s the great thing: if you do the risk associated with this transaction, let’s say I do need to replace that cannabis tenant, well, that’s six million dollars of improvements.

And although we don’t provide a valuation to our borrower on that, we will include that in our collateral package. So you as the borrower would be out six million dollars plus the two million from the loan that we provided, or in this case at 75% LTV that comes out to 1.5. So why would you walk away from all that equity that you have in the property on potentially a $1.5 million loan? So we have a great track record of avoiding riskier deals. And ultimately the deals that we’ve funded have performed, and to date we’ve done thirty-five transactions or thirty-five properties across eleven states. Eight of those have gone full cycle, leaving twenty-seven in the portfolio today.

Meghan Escobar (13:42)
Clap it up. That’s awesome.

Chris Reece (13:44)
But listen, I want to be realistic here, too, because at some point—listen, we’re gonna have a default in the portfolio and we’ll need to retenant that. But again, having that risk profile that we have, that downside protection—the biggest hit to the fund is the loss of that monthly income. And so we can re-tenant the property, and that might take two or three months. And so for a period of two to three months, that position, that property, would no longer be paying us interest until we re-tenant that. That’s why we run a diversified portfolio; it’s not a single-property strategy.

Meghan Escobar (14:14)
Makes sense. It all makes sense. One plus one equals two, right? I mean, yeah, exactly. And you’re clearly in the game to stay long term. So I’m curious to know what it is that you’re most focused on solving or scaling next. What is the next real big goal for you?

Chris Reece (14:32)
Well, for us, it’s to continue to scale MJ REIT, and continue to provide capital ultimately to help the industry grow. ‘Cause whether you either like it or dislike the cannabis space, the one thing that you can’t necessarily argue with is that, unlike tobacco or alcohol, there are medical benefits—proven medical benefits—to the use of cannabis. And whether that’s to treat PTSD, anxiety, or other areas within the market, it does have medical benefits. And, you know, if you look at where we are in the States today, a lot of doctors prescribe opioids where they may not need to. And we have an opioid crisis. So if we can help a hundred thousand or ten thousand or however many people avoid becoming addicted to opioids with the use of cannabis, which has zero—not to say zero side effects, but not long-term side effects like opioids do, right? That’s what it is. And truthfully, if you think about it, you go to a cocktail party, you suck back two or three glasses of wine. Well, that wine is a toxin, it’s a poison to your body, unlike eating an edible where it takes the edge off, no different than a way to unwind after a stressful day, but you’re doing it in a way or manner that’s not going to provide—you’re not gonna get hungover, you’re not gonna have the side effects that you do with alcohol.

Meghan Escobar (16:39)
Yeah, a hundred percent. Man, we could talk about this for days. I absolutely love it. But unfortunately, we don’t have all day. But I know a lot of people listening in are either very early on in their journey—whether that’s becoming an entrepreneur, stepping into real estate—or they’ve been in the game long term and they’re looking for the next opportunity to level up. And I think it’s really important, or that they would benefit from hearing, when it comes to building relationships and growing your network—I know that’s something you mentioned is future for you guys—how do you feel about networking and being in specific rooms to help grow your success?

Chris Reece (17:22)
We continue to look at essentially spreading the word about what we do. And that’s one of the biggest areas of focus—that we provide a valuable solution for individuals looking to diversify their real estate exposure or as an alternative to traditional fixed income. And it’s those two areas and networking—we host in the Philadelphia and New York area. We generally will host networking events as well just to get out into the community, meet people. And for us, it’s not only networking to spread the word of MJ REIT, but it’s also bringing people together in that maybe you have a conversation because, let me say, you have a pool company and you happen to meet somebody that’s looking to build a pool. And so we bring those individuals and those connections together. So we’re big proponents of networking across the board.

Meghan Escobar (18:10)
Absolutely. I think it’s super important for people to understand the value of creating relationships in business.

Chris Reece (18:18)
Well, think about it: on our borrowers, the easiest way—I mean, obviously if we make a loan to you and it’s a three-year loan and you pay us off, and then maybe a year later you’re doing something else, well, we already know you. And at the end of the day, it’s really the individual and it’s not necessarily the property itself. It’s: do you trust the borrower overall, and are they gonna be able to meet their interest obligations when they need to pay their mortgage? So, you know, it’s understanding that relationship, and then repeat borrowers are a big component of what we are and who we lend to in the portfolio.

Meghan Escobar (18:52)
Yeah, one hundred percent. All right. Well, this has been an absolutely incredible conversation. And before we wrap things up here, Chris, if somebody wanted to reach out to you and potentially collab or learn more about the fund, what would be the best way for them to reach you? Is it through email? Do you have a social media site or a phone number?

Chris Reece (19:13)
Yeah, so there’s a couple of ways. You can go to our general website, which is mj-reit.com. And on there, you can sign up for our monthly newsletter. That’s probably the easiest way. There’s also a time slot on there, a calendar event, so you can schedule time directly on my calendar, or you can give us a call directly. Personally, my number is 610-389-9159. If anybody is interested in learning more specifically about the opportunity—or we may not be a fit for your portfolio, but it might be worth having a discussion and seeing if we are. And if we are, we’d be happy and ecstatic to partner with you.

Meghan Escobar (19:56)
Love that. Well, listen, I really appreciate your time, your story, and more importantly, your perspective and the knowledge that you shared here with us, myself, and the audience today. So thank you so much again for being here. I really appreciate it.

Chris Reece (20:10)
Thank you, Meghan. Really enjoyed the time today.

Meghan Escobar (20:13)
Absolutely. And for those of you that are tuning in, if you got any value from this and you want to hear more, please be sure to hit like and subscribe. We’ve got more conversations coming in just like this with real people like Chris Reece, building real business in real time. See you on the next episode.