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.
How to Maximize Your Cannabis Yield: Commercial Real Estate — Part 2
Choosing the best available property for your cannabis business is no small task. Will you build your own facility or adapt an existing building for your use? Is it better to lease or purchase? There are endless decisions to make when considering how to maximize your cannabis yield.
Your choice of real estate will impact every aspect of your business, including your bottom line. You may be fortunate enough to have several properties to choose from. Where there are fewer options, you might have to make some compromises. In any case, shop with an unwavering eye for detail.
Before you sign on the dotted line, we have some tips to help you choose a property wisely.
Finding a Functional Building
If you aren’t stepping into an existing business, perhaps you’ll be lucky enough to find a building that doesn’t require too much in the way of repairs, remodeling, or retrofitting to suit your needs. When choosing a building, it’s important to consider the functionality of the space.
When selecting a spot for a dispensary, the most important considerations after zoning are proximity and accessibility for your target customers. Is the location one in which you, your employees, and customers will feel safe? Ideally, your store will be in a neighborhood that’s cannabis-friendly — or at least neutral.
Existing retail spaces designed for other businesses can often be easily converted to suit your needs. Changes are sometimes mostly cosmetic, which means the majority of your budget can be spent on fixtures, lighting, and display cases.
The costs to retrofit a space to meet the needs of a grow can be steep. Seemingly small details can quickly turn into “projects.” When assessing a building for cultivation use, examine the space carefully. Identifying potential issues with a property up-front can make a huge difference when trying to maximize your cannabis yield.
Take a look at ceiling height. Is it high enough to give you ample clearance between your plants and lights? If not, you could burn your plants. Conversely, if you have a warehouse with a towering ceiling, you may have to install a drop ceiling to bring your lights and sprinkler system closer to your plants.
Every indoor grow operation, regardless of location, also requires air conditioning to offset the heat from your lights and humidity from plants. As cooling is a significant cost, energy-efficiency is important. Avoid overly tall ceilings and seek reasonably well-insulated structures to keep money in your pocket.
Land & Design-Build
When you start with bare land — or land with limited improvements — your project is going to involve more parts and pieces. Some of them will apply whether you plan to grow outdoors or build a structure for cultivating, processing, or manufacturing.
Zoning and cost per square foot are going to push most cultivation operations into rural or semi-rural areas. Before you buy acreage, find out if utilities are available on-site or if you’ll have to invest to connect them. If you have to run power to the site, it will up your costs significantly. Likewise, the cost of drilling a well can run into the thousands.
Keep in mind that rights of ingress and egress determine your ability to access your land. You may need an easement that allows you to share a private road or driveway to legally come and go. Alternately, you might need to build your own road.
Ready to Buy?
If you plan to work in an area that’s had a legal cannabis market for a while (like Denver, for example), there may be a turnkey asset like a cultivation or extraction business or a dispensary for sale. An opportunity like this will come with a higher price tag, but if you can fund the purchase, it may be worth the investment.
However, just because you’re considering a turnkey property doesn’t mean you can slack on due diligence. Treat it as you you would any other property and make certain there are no new regulations that could negatively impact your business’s ability to operate.
Thinking About Leasing?
If you’re able to buy property for your cannabis business, you can pocket the equity it accrues. In some cases, however, leasing is the only option. By operating a cannabis facility on leased property, you’re elevating its value to your landlord’s benefit instead of your own.
When considering a leased property, keep in mind that landlords may charge several times the going rate when renting to cannabis businesses. Additionally, if you rent from someone who has a bank loan on the property, be wary. That bank can call the loan due if they learn a cannabis business is operating there — thereby upending your business.
Lease terms have to be carefully negotiated as you don’t want to invest a few hundred thousand dollars in improvements on someone’s property who can terminate your lease. In negotiating a lease, be sure you can stay put long enough to make it worthwhile. See if you can negotiate a term of several years.
Before You Sign
Before you enter into a lease or purchase agreement of any kind, conduct your due diligence. If purchasing an existing structure, get a property inspection. An appraisal isn’t sufficient to identify hidden defects, including structural ones, that can turn into problems down the road.
Above all, be sure any offer you sign to lease or purchase a property is contingent on your ability to obtain an appropriate cannabis licensing.
It’s best to work with realtors who specialize in cannabis real estate. They’ll know the rules and be better equipped to anticipate your needs. Before you sign on the dotted line, it’s best to have any contracts reviewed by a qualified attorney familiar with the industry.
Also be sure to catch Part 1 of How to Maximize Your Cannabis Yield: Commercial Real Estate for more information on finding, valuing, and financing commercial real estate that meets your needs.
There’s a long list of details to consider when it comes to understanding how to maximize your cannabis yield through your choice of real estate.
We can help your budding cannabis business check all the boxes. To learn more, reach out to us and schedule a free consultation.