Cannabis Real Estate: Deals Depend on Timing, People & Politics
When it comes to finding a home for your cannabis operation, you may be challenged by zoning regulations, competition, and a looming deadline. Some cities and states require you to provide proof you’ve already secured compliant cannabis real estate as one of many rigorous criteria to apply for a license.
It may seem like putting the cart before the horse. However, having your property all lined up can be a condition of licensing to help ensure you can carry out your plan to dispense, cultivate, and/or process cannabis. Regulators don’t want to see operations stall or fail to launch because applicants lack a suitable location.
While the neighborhood florist need only be concerned about locating their shop in a commercially zoned area, you must be sure the spot you’re eyeing doesn’t lie within a buffer zone. These areas are intended to put distance between cannabis businesses and places like schools, daycare facilities, playgrounds, and places of worship.
Cannabis businesses need to operate in legal “green zones.” Such spots can be especially hard to find in dense urban areas or locations where unlimited licensing results in a swarm of buyers vying for the same properties. Lucky for you, we have some tips for finding and securing cannabis real estate, even in a tight market.
The Cannabis Real Estate Monopoly Game
Starting a business in a newly cannabis-legal state might be just a gleam in your eye. Meanwhile, big multistate operators with bushels of cash are at least two steps ahead of you. They have the financial leverage to come into a new market ahead of the crowd and start gobbling up prime cannabis real estate — and the licenses to go with it.
There are also investment companies that focus exclusively on acquiring large portfolios of retail and industrial cannabis properties across the country. They then enter into profitable lease agreements with (typically large) cannabis companies across all verticals from retail to processing, extracting, infusing, and cultivating.
Commercial cannabis real estate has become its own highly competitive niche. Looking beyond properties that are listed for sale or lease may be the answer, but it can require putting your boots on the ground to find them.
Tap the Community to Find Unlisted Properties
Do you know where you want to start your cannabis business? Get to know the community. Visit coffee shops, pizza parlors, and sports bars. Talk to people and listen to their concerns and pain points. Let them get to know you and your objectives. Meet with the mayor, and attend town hall meetings to get a read on what’s happening.
Explain that you want to be a good steward and neighbor who employs groups in need of work — such as veterans — and generates tax dollars. Let folks know the sort of real estate you need to make your business a reality while also making it known that you prioritize community involvement and improvement.
As a rule of thumb, you should expect to pay above market value for cannabis real estate. When you’re able to offer the lady who owns the bridal shop extra cash for her building, she may be able to afford to sell it.
The auto mechanic over on Main Street might like to retire, but he could have too much debt or want to save some money for his grandkids. You could offer to lease his garage. Then he can retire with a nice passive income, and maybe he’ll end up on the board of your cannabis company.
What about the local tractor supply company? They may have an extra warehouse in an area zoned for growing. The corner bodega may have extra square footage they didn’t think was worth leasing. Reach out and talk to them. The perfect piece of cannabis real estate may be right under your nose.
Avoid Buffer Zones
States, counties, and cities may all have a say on exactly where your cannabis business can reside. Zoning laws vary widely. Those in Oakland, California, for example, specify that your business must be 600 feet from any schools.
However, in the FAQs for Oakland’s ordinance, you’ll learn that “the distance between facilities shall be measured via path of travel from the closest door of one facility to the closest door of the other.” That means a school could be right behind you, but if you have to exit the front door and go around the block to get to it, you’re in the clear.
It pays to read each ordinance carefully because there may be room for interpretation that can help you. Just don’t play a game of zoning whack-a-mole. Be clear on all rules and zoning requirements and get to know the people down at the planning and zoning departments. They may even be able to help you get a zoning variance for your business.
Evaluate the Site
When it comes to space for indoor cultivation or processing, you’ll find that properties within cities and their immediate environs can be prohibitively expensive given the amount of space you need. Most grows will necessarily be located in more rural or industrial areas where square footage is less at a premium.
If you purchase raw land for a cannabis build, you may need to factor in the viability and cost of hooking up to electric, water, and sewer. You’ll want to perform extreme due diligence to make certain you’re not purchasing a site contaminated with industrial waste or one with buried chemical or fuel tanks.
Safety & Security
If you do cannabis extraction, you’ll need to locate your operation in an area zoned for industrial or manufacturing use. Working with volatile compounds like ethanol may require a closed-loop system to keep solvents out of the air. Extraction operations will require an inspection and sign-off by a fire code official.
If you lease your premises, be certain you have a written statement signed by the property owner allowing cannabis manufacturing on the property. You’ll need a similar statement from your landlord for any other cannabis-related operations to protect his or her interests along with your own.
Financing a cannabis real estate purchase is challenging. Because cannabis remains illegal at the national level, federally regulated banks can’t participate. Even so, nature abhors a vacuum, especially when it comes to an opportunity for lenders to make money.
Private lenders — along with certain state banks and local credit unions — might be in a position to fund your project. They know the demand for money in the cannabis industry outweighs the supply. Therefore, cannabis real estate borrowers should be cautious of predatory lending practices and shop around to find the best available loan terms.
Lease With Caution
Property leasing presents its own set of challenges. If a property has an existing mortgage on it, there will likely be a clause in the loan agreement stating something down the lines of: “the borrower, the property, and its use will comply with all applicable laws, rules, and regulations.”
That should nix any cannabis leasing deal as it could put the landlord, lender, and you (as a tenant) at risk. There are several other considerations when it comes to leasing including banking, computation of rent that doesn’t violate the law, and adequate insurance that covers cannabis-related businesses.
Making the Deal
There is no question that cannabis real estate is a high-stakes proposition. If you’re buying a property you must make sure, among other things, that any offer you make is contingent upon you receiving a cannabis license. You don’t want to end up with a warehouse or an empty former shoe store unless you have a definite Plan B for the space.
There are things like environmental code to parse, along with conditional use permits where required. You might be exploring real estate language for the first time, so terms like leaseback agreements and escrow may be new to you.
Hire a lawyer versed in cannabis real estate to write or review any purchase, lease, or loan agreements. Find and reach out to people with cannabis industry experience for everything your real estate project requires — from construction management to systems installation.
Remember to Keep It Local
Have you found the perfect piece of cannabis real estate? Visit the local tax office for clarity on exactly what kinds of licenses will be available in the area where you want to start your venture.
Get to know business owners and city officials on a first-name basis. Never forget that all politics is local, and be sure to stop in at the town’s most popular diner for breakfast —it’s a great opportunity to hobnob.
If you’re interested in learning more about the ins and outs of securing a prime piece of cannabis real estate, reach out to us to schedule a free consultation.