PACE funding promotes facility energy efficiency

The cannabis industry, marijuana particularly, faces a litany of issues. From equity to perception, from educational obstacles to propaganda, cannabis is often stigmatized as a dirty word.

For an industry that generates billions in revenue, and is projected to grow nearly 40 percent over the next four years, there is no more glaring discrepancy than in the financials.

Cannabis businesses create sustainable revenues, large tax allocations, reinvigorate economies, and create growth – but often struggle to find support from banks and other financial entities.

With this millstone seemingly a permanent fixture around the necks of cannabis businesses, the industry has become a beacon for outside the box thinkers and resourceful doers.

Greenway recently spoke to Christopher K. Dussold, Ph.D., Managing Partner and Co-Founder of Avail Professional Services about creative financial solutions and obstacles faced by the cannabis industry.

One of those unique opportunities and outside the box thinking examples is the use of PACE financing (property assessed clean energy financing).

“Some lenders are uncomfortable with cannabis funding, even though the State of Missouri has approved medical marijuana.  However, the lenders who participate in cannabis loans have been fairly aggressive with their desire to fund these C-PACE projects.” Dr. Dussold explained.

PACE financing allows borrowers to make energy efficiency upgrades, disaster resiliency improvements, water conservation measures, or renewable energy installations of residential, commercial, and industrial property owners. 

Dr. Dussold explained the commercial aspects of PACE in more detail.

“Commercial PACE (C-PACE) is a state-legislated program that promotes community-based economic development through open-market financing for energy-efficient and renewable energy projects,” Dussold said. “It allows building improvements that result in utility savings to be funded by private capital and repaid via a long-term property tax assessment. The funding is limited to as much as 30 percent of the total project build-out, as long as the items financed meet the energy efficiency requirements established by the program. C-PACE tax assessments are long-term, fixed-rate, and non-recourse. These tax assessments can extend for periods of up to 30 years, so long as the weighted average useful life of the installed measures exceed the term of the C-PACE assessment. C-PACE tax assessments are also fully transferable between owners since it is tied to the land and, as it is tax assessed, can be passed along to a building’s tenant.

   

“The C-PACE program is able to work with multiple lenders to provide capital for commercial projects.”

In 2017 and 2018 PACE loans and financing saw a substantial push from government resources including the US Department of Energy (DOE). A large part of that effort was the Commercial PACE Working Group, an initiative designed to stimulate $60 million in Commercial Property Assessed Clean Energy (C-PACE) investments by 2022. In Missouri, PACE legislation was originally enacted in 2010. The Missouri legislation allows PACE to be used for energy efficiency improvements and renewable energy improvements.

Energy efficiency improvements are defined as “any acquisition, installation or modification on or of publicly- or privately-owned property which is designed to reduce the energy consumption of such property, including, but not limited to:

• Insulation in walls, roofs, attics, floors, foundations, and heating and cooling distribution systems
• Storm windows and doors, multi-glazed windows and doors, heat-absorbing or heat-reflective windows and doors, and other window and door improvements designed to reduce energy consumption
• Automatic energy control systems
• Heating, ventilating, or air conditioning distribution system modifications and replacements;
• Caulking and weatherstripping
• Replacement or modification of lighting fixtures to increase the energy efficiency of the lighting system without increasing the overall illumination of the building unless the increase in illumination is necessary to conform to applicable state or local building codes
• Energy recovery systems
• Daylighting systems”

Renewable energy improvements are defined as, ”any acquisition and installation of a fixture, product, system, device, or combination thereof on publicly- or privately-owned property which produces energy from renewable resources, including, but not limited to:

• Photovoltaic systems
• Solar thermal systems
• Wind systems
• Biomass systems
• Geothermal systems”

“The program serves all Missouri business sectors, including commercial, industrial, agricultural, nonprofit, multifamily and institutional,” Dr. Dussold continued, “The typical cannabis project will include many of the above items. In fact, these items constitute some of the most expensive components of a cannabis or hemp business.”

Improving, retrofitting, or building in the most environmentally conscious or energy-efficient way is often far more expensive. For fledgling businesses and investors, financial decisions often require sacrifice and compromise. Even those businesses with the best intentions quickly succumb to the cost differential in order to become operational.

“Businesses can often finance more of their projects upfront and then repay their financing through annual property assessments.  This helps to make comprehensive energy efficiency and clean energy improvements affordable.  By eliminating some of the obstacles to more reasonable financing terms, C-PACE also provides the funding necessary to stimulate local job growth. Typical items that can be funded through C-PACE are HVAC, LED lighting, energy-efficient windows and insulation, and irrigation systems, to name a few.”

With C-PACE options businesses can allow themselves a more sustainable long-term vision with their project, while making responsible decisions and improvements. 

For operators who may be kicking themselves over missed opportunities, Dussold has good news, “C-PACE allows funding of energy-efficient inputs that have already been installed on recently completed or ‘in process’ projects.  This retroactive feature allows the program to recoup capital already spent on qualifying project components.” 

In a market where energy solutions, conservation, and lower carbon impacts are so vital to sustainability and public perception, the opportunities to embrace emerging technology while decreasing environmental impact are rife.