On Sept. 29th Higher Yields will be holding a Cannabis LIVE Symposium dealing with Government Outreach and Social Equity in your state or community. For more information or to register please visit this link.
Choosing the Right Marijuana Property for Your Cannabis Business
There’s a lot the cannabis industry has working against it – like sophomoric legislation, gray legal areas, and closed-minded banking partners – but one of the most overlooked factors is real estate. Finding the perfect marijuana property for your budding business is no small feat and there are far more factors affecting your decision than most business owners realize.
As the Vice President and co-owner of Higher Yields Consulting, I help our clients secure the right marijuana property with the right facilities in just the right location. From key decisions such as “To buy or to lease?” to “To vertically integrate or niche down?” the nuances of securing success start in the earliest days of building your business.
Here’s what you need to know as you’re scouting out your business’s new home.
Renting vs. Buying Your Marijuana Property
When first building your business plan, securing a location for your operation is one of the earliest steps. Buying a property increases the valuation of your business, makes it easier to customize your operation, and has potential for massive ROI in the future. (That’s return on investment, BTW.)
In fact, if you’re able to secure a license for the operation housed at your facility, the value of your property will also increase.
Yet, while buying a property is the ideal scenario for many new cannabis businesses, owning a property can be a financial burden if the market tanks. Realistically, real estate – especially that which holds a sturdily constructed facility – is very rarely unable to be liquidated, but you’re at the mercy of a fluctuating market.
Unable to Buy? No Problem
New businesses often don’t have the capital available to buy a property outright, which makes leasing a viable alternative. In many cases, leasing is a smart strategy in case you need to exit the business quickly, if you’re entering a segment of the industry that’s high-risk, or if you’re in a community with wavering views on cannabis and its legality.
With leasing the risk is far lower, but there are several other challenges that go along with renting a space. For instance, insurance is more challenging to secure, especially in a not-so-420-friendly market.
If you’re considering leasing, a key consideration is: how flexible are you with your business vision?
Many business owners have rigid ideas of what they’d like their business to be when buying or leasing a marijuana property. However, if you’re leasing you may have to conform your business model to the type of operation allowed at the facility and the type of facility available.
For instance, if you had dreams of running a cultivation business, but the only property you can find for lease in your price range has low ceilings, you’re likely going to have to change over to a retail or dispensary-type business.
In general, buying a property is ideal for businesses that already have investors, have a proven track record of successful cannabis-based or cannabis-adjacent businesses, and have experience scaling a business.
Leasing is likely a better fit if you’re new to the market, have no track record of business success, have funds but not enough to buy a property, have little to no reputation to woo investors, and minimal proof of concept.
Special Considerations for Selecting Your Property
The method (buying or leasing) and type of property you decide to buy also depends on the type of operation you’re planning.
For those dreaming of building a cultivation business, the absolute most important factor to consider is location. If you’re planning an outdoor farm, what’s the climate like? Is it temperate and predictable enough to support a lucrative crop?
Is it free from extreme storms and in a location that has good run-off, high-quality soil, and a stable water table? If not, can you afford to control for or supplement those necessities?
Next, consider whether you’re going to have the room to build a greenhouse or indoor grow facility. If the property you’re scouting already has a building, are the ceilings high enough to accommodate the right lights your grower needs? Do the power requirements meet those of an indoor grow facility?
Is your location secure enough or able to be set up with adequate security?
The location of your business will also affect whether the municipality will allow you to obtain a license for cultivation, which is something many first-time cannabis business builders overlook.
When consulting our clients to find the perfect marijuana property for their business models, we consider factors including square footage, ceiling height, security, air flow, insulation, and more. We work with the grower to determine any special needs for the unique method of cultivation, too.
When searching for a manufacturing facility, the most critical factor is location. If you’re leasing, you need to ensure your landlord is on board and will allow you to run a kitchen.
During the extraction process, several manufacturers use chemicals and equipment that may be seen as hazardous. The insurance required to operate your business may be significantly higher – and rent may be higher as well if your landlord allows the operation.
You’ll also need to ensure your marijuana property can handle the electricity demands for the entire kitchen – it must be able to handle your business at maximum capacity. This requires thinking years down the road when you have built and scaled your business.
What will your capacity be in three years once you’ve optimized your operation? Will the property you’re eyeing be able to support it?
When shopping for a retail facility, the most critical factor is location. (Are you noticing a pattern here?)
Retail marijuana properties demand high foot traffic and easy visibility from the road. Your biggest challenge as a retail business is letting interested customers know you exist.
Therefore, you’ll need a facility that’s easy to access and has a layout that will suit a successful, enjoyable dispensary experience for customers to return to again and again.
Availability is highly competitive for dispensary properties and many business owners also fail to consider the build-out price. Materials like shelving, display cases, and storage for product volume are costly and often don’t come with either a purchased or leased property.
Strategize From Day 1
It’s not enough to find a beautiful property where you can envision growing your cannabis business into a flourishing enterprise. You also have to protect your financial and energetic investment by planning for a successful future and ensuring your property can support it.
As the real estate and finance expert at Higher Yields Consulting, I help our clients navigate the systems, laws, and municipal regulations that will determine the success or failure of a cannabis business.
Protect yourself and your budding business by working with a trusted business partner. Seek out a consulting company that has an impeccable track record of securing a marijuana property, securing capital, submitting applications, winning licenses, building systems and operating procedures, creating a successful working environment, and connecting you with the team members and associates who are going to give your operation a leading edge.
Getting an expert on your side from the very start is the fastest pathway to a stable, successful cannabis business.
Have questions about finding the right marijuana property for your cannabis business? Drop them in the comments below and we’ll do our best to help you take the best next step.