On this TDR’s Trade to Black Podcast, we talk with the Managing Partner of Pelorus Equity Group, Travis Goad. Just days removed from the recent announcement that Pelorus had closed a non-brokered senior secured term loan for approximately $45.5 million with TerrAscend Corp. (CNSX: TER) (OTCMKTS: TRSSF), we wanted to better understand the firm’s underwriting principles and why it decided to stay private instead of listing as a public company.
Regarding its underwriting standards, a key pillar to Pelorus Equity Group’s approach is its focus on the value of underlying cannabis operator real estate assets, as opposed to a corporate model that lends based upon the value of individual company assets that could depreciate over time (i.e. retail or cultivation licenses in a given state). By lending capital based on collateralized real estate assets (but at less that fully appraised value, 60-75% of value of the asset) the firm has a built-in buffer of protection in case the loan becomes non-performing.
As it were, Pelorus Equity Group maintains senior secured creditor status on the loans that it issues. By definition, this means any creditor or lender associated with an issuance of a credit product that is backed by collateral. Should the unforeseen happen and a loan goes into default, the asset may be sold to cover the debt, to which Pelorus would be first in line to receive payback.
Mr. Goad also goes into detail about his firm’s decision to stay private and forgo listing on the public exchanges. Given the state of public equity values of anything cannabis related, this has proved to be an extremely prescient decision.
Based in Newport Beach, California, Pelorus Equity Group finances the construction and conversion of properties for cannabis operators. The company employs a mortgage REIT (mREITs) lending model that hold mortgages and mortgage backed securities on their balance sheets, and fund these investments with equity and debt capital.
In 2018, Pelorus launched the Pelorus Fund with the lending strategy of senior secured notes collateralized by cannabis-use real estate properties with personal and corporate guarantees from the sponsors. The Fund has returned an internal rate of return of at least 15% in every full year of operations, as is inline to return over 12% in 2022.
To view our previous Trade To Black Podcast, click here.