Cannabis Real Estate: Challenges and Opportunities for Entrepreneurs

Introduction

According to Grand View Research, the worldwide legal marijuana sector is estimated to reach USD 70.6 billion by 2028. Even though many people have rushed into the marijuana sector, not everyone has the financial means to succeed. Some people have the time and money but lack the necessary real estate. On the other side, some people may own property yet lack the financial resources to launch a business. This is when the professionals’ experience comes into play.

What is the importance of cannabis real estate?

Cannabis is already legal in several states, and the market is rapidly growing. Retailers, distributors, manufacturers, and growers will all require a place to operate. Cities have designated zoning for cannabis businesses inside their boundaries. To know if their land may be used for, is in the green zones and property owners must understand how their land is designated. This is especially important for those who want to sell or rent their cannabis property since its value is defined by its prospective applications.

Because cannabis properties are currently in such great demand, many once-abandoned and unsightly residences have been transformed into highly profitable business possibilities. Because there are so many rules and regulations governing the acquisition, development, licensing, and other aspects of cannabis real estate, it is strongly suggested that you contact a cannabis real estate professional.

Leasing or buying?

Often, cannabis entrepreneurs will have to face the question of whether it would be better to lease or buy cannabis real estate listings. Most states accept both for the issuance of a cannabis license. Here are some pros and cons to answer the question of “Should I lease or buy”?

• Buying:
  • Pros:
    • Wealth building.
    • You secure the value of the property in case the business fails.
    • Assets
    • Tax breaks.
    • You can rent the unused space.
  • Cons:
    • Expensive.
    • Highly depends on budget.
    • Takes more time to get started.
    • Long commitment
  • Leasing:
    • Pros:
      • Cheaper than buying a for sale by owner property/farms.
      • Easier to get a good location.
      • You’re able to negotiate with your landlord.
    • Cons:
      • If the business fails, you will most likely be left with nothing.
      • There’s a limited market for leasing a green zone property.
      • You might be subject to a rent increase.

The Growing Demand for Cannabis Business Real Estate

Cannabis companies are in high demand for bricks and mortar properties that can be used for cultivation, processing and retail. However, securing the right property isn’t without its challenges as many landlords may still carry a stigma towards cannabis businesses. Additionally, traditional lenders are often hesitant to lend money due to the legal risks involved in the industry. Specialized lenders with expertise regarding cannabis laws can be an alternative solution to secure financing when purchasing real estate for a cannabis business.

The global cannabis market and its impact on real estate

The global cannabis industry is rapidly expanding, with a projected market value of $100 billion by 2028. As legalization efforts continue around the world, the demand for real estate that can be used for cannabis businesses is also increasing. This includes properties such as cultivation facilities, processing plants and retail locations.

The global cannabis industry is set to reach a market value of $100 billion by 2028, creating increasing demand for real estate that can be used for cannabis businesses such as cultivation facilities, processing plants and retail locations.

As the industry grows, entrepreneurs looking to start or operate a cannabis business face challenges in finding suitable brick-and-mortar properties due to the lack of clear regulations in many jurisdictions and the stigma associated with the industry. However, specialized brokers are emerging who understand the unique needs of this growing sector.

Cannabis companies seeking to invest in properties need to consider financing options from specialized lenders since traditional lenders are hesitant to lend money due legal risks involved. Keeping these factors in mind when navigating through complex processes can help entrepreneurs succeed amidst opportunities available in this burgeoning market segment.

The types of cannabis business properties in demand

Cannabis companies seeking brick-and-mortar dispensary businesses must consider location requirements, zoning laws, and security considerations. A real estate agent or Realtors® can help navigate these issues to ensure compliance with all applicable regulations. For those interested in cultivation facilities or manufacturing facilities for extraction or processing, space requirements, licenses needed, equipment, energy consumption concerns, and other regulations must also be taken into account when choosing a property. It is important to work with an experienced cannabis business real estate broker who has expertise in this complex industry to find the right property for your needs.

Challenges of Buying and Selling Cannabis Business Real Estate

The lack of clear regulations in many jurisdictions and the stigmatization of the cannabis industry are some challenges entrepreneurs face when buying or selling cannabis business real estate. These factors can make it challenging to secure financing, comply with all applicable laws and regulations, and find landlords willing to rent to cannabis businesses. However, acquiring the right property that meets all zoning requirements, size needs, and layout efficiency is essential for success in this growing industry. Specialized lenders who understand the unique risks associated with cannabis businesses can provide financing solutions despite traditional lender hesitancy.

Lack of clear regulations in many jurisdictions

With the cannabis industry still being relatively new, there is a lack of clear regulations in many jurisdictions, making it difficult to obtain financing for cannabis properties and comply with zoning and land use restrictions. Additionally, uncertainty around licensing and permitting requirements can further complicate matters. This makes finding the right property a challenge for entrepreneurs looking to start or operate a cannabis business. However, specialized lenders who understand the industry are available to work with you in securing financing so that you can close deals successfully and grow your business.

Stigmatization of the cannabis industry

Limited availability of real estate options due to social stigma, difficulty finding supportive community partners or investors, and higher insurance costs are some of the challenges cannabis entrepreneurs face in the industry. The stigmatization of the cannabis industry can make it difficult for businesses to find a suitable location and secure funding, which is crucial for success.

Real estate and property owners may be hesitant to rent or sell their properties to cannabis businesses because they fear legal consequences or damage to their reputations. This scarcity in real estate options drives up prices, making it more challenging for new entrants into the market. Additionally, insurance companies charge higher premiums due to the perceived risks associated with operating a cannabis business.

To overcome these challenges, entrepreneurs must seek out specialized lenders who understand the nuances of investing in this sector. Additionally, building partnerships within supportive communities can provide additional resources and support necessary for success.

Finding the Right Property

Finding the right property is crucial when it comes to starting or operating a cannabis business. You need to ensure that the property meets all of the applicable zoning requirements and is located in a jurisdiction where cannabis is legal. Additionally, you need to consider size, layout, and functional efficiency.

There are a lot of MLS platforms that you can use to find zoned properties for cannabis facilities. Finding landlords who are willing to rent to cannabis businesses can also be challenging due to industry stigma and premium rent demands. Acquire the best location that aligns with your business plan.

Jurisdictional Requirements for cannabis properties

To successfully operate a cannabis business, it is crucial to understand the state and local regulations on cannabis business real estate. This includes applying for necessary permits and licenses for your property and ensuring compliance with zoning laws, building codes, and fire safety regulations. Some of the key jurisdictional requirements for cannabis properties include:

• Understanding state and local regulations on cannabis business real estate
• Applying for necessary permits and licenses for your property
• Ensuring compliance with zoning laws, building codes, and fire safety regulations.

Navigating these requirements can be complex due to the evolving legal landscape in different jurisdictions. Working with experts who have experience in the industry can help you ensure that your property meets all regulatory requirements before opening your doors to customers.

Zoning Requirements for cannabis properties

Identifying areas zoned for commercial or industrial use that permit cannabis businesses is crucial when looking to buy or lease property in the cannabis industry. Additionally, navigating restrictions on the proximity of schools, parks, and other sensitive locations is important to ensure compliance with local regulations. Working with local government officials to obtain necessary zoning variances or special use permits can be a solution if your desired location doesn’t meet all of the requirements. By taking these steps and working within legal guidelines, entrepreneurs can find success in the competitive world of cannabis business real estate.

Size and layout considerations for cannabis properties

Assessing space needs based on the intended use of the property is crucial when looking for cannabis properties. Whether it’s growing, processing, or dispensary, the size and layout must be efficient and functional. Additionally, optimizing security features such as cameras, alarm systems, and physical barriers are necessary to meet legal expectations. Evaluating access to utilities including water supply lines & electrical capacity needed is also important in terms of sustainability.

Consider the following factors when assessing size and layout considerations for cannabis properties:

• Intended use of property
• Available square footage
• Efficient floor plan
• Adequate lighting & ventilation system
• Convenient location
• Security measures (cameras, alarms)
• Water supply lines & electrical capacity

Securing Financing

Securing financing for marijuana business real estate can be a major challenge due to the legal risks involved. Most traditional lenders are hesitant to lend money to cannabis businesses, but specialized lenders who understand the industry can offer more options. Entrepreneurs looking for financing should research these specialized lenders and work with them to secure funding for their cannabis business property needs.

Traditional lenders’ hesitance to finance cannabis businesses

The legal status of cannabis and its impact on obtaining traditional financing is a major challenge for entrepreneurs looking to start or operate a cannabis business. Traditional lenders are hesitant to finance these businesses due to the risks involved with the industry’s legality. Additionally, the stigma surrounding cannabis affects traditional lending as many landlords may require premium rent and some lenders simply refuse to provide funding altogether.

Despite traditional lenders’ reluctance, there are possible solutions for entrepreneurs to secure financing. Specialized lenders who have a better understanding of the industry may be willing to work with you. Additionally, seeking out investors, crowdfunding campaigns, or joint ventures could also provide alternative means of securing financing for your cannabis business real estate venture.

Specialized lenders for cannabis businesses

Specialized lenders in the cannabis industry are becoming more prevalent as traditional lenders remain hesitant to finance cannabis businesses. These specialized lenders have a better understanding of the legal risks involved and can provide tailored financing solutions to meet the unique needs of cannabis businesses. However, working with them also has its cons, including higher interest rates and fees. To find reputable and trustworthy specialized lenders for your cannabis business, it’s important to do your research and look for those with experience in the industry, positive reviews from other borrowers, and transparent lending practices.

Closing the Deal

Closing a deal for cannabis business real estate can be a lengthy process. To negotiate the purchase price, research comparable properties in the area and understand any unique factors that may impact valuation. Obtaining title insurance is crucial to protect your investment from potential legal disputes or claims against the property. Finally, closing on a loan can be challenging due to financing restrictions in this industry, but specialized lenders with experience working with cannabis businesses can help streamline this process.

In summary, entrepreneurs looking to buy or sell cannabis business real estate must navigate various challenges such as securing financing and complying with laws and regulations. By finding the right property, negotiating effectively, obtaining necessary insurance coverage and working with specialized lenders when needed- investors will have increased chances of success in this rapidly growing industry.

Negotiating the purchase price

Assessing the market value of cannabis properties is crucial before entering into negotiations for purchase. Factors such as location, zoning requirements, and property size can all affect pricing negotiations. It’s important to research comparable properties and recent sales in the area to determine a fair price.

When negotiating the purchase price of a cannabis property, it’s essential to be prepared with data and information supporting your offer. Be mindful of factors that could affect the transaction, such as regulations or political climate changes. Successful negotiation also involves being flexible and willing to compromise on certain terms while standing firm on others. A win-win outcome is ideal for both parties involved in the transaction.

Obtaining title insurance

Understanding the importance of title insurance in real estate transactions is crucial for entrepreneurs who operate cannabis businesses. Title insurance protects buyers and lenders against potential ownership disputes, liens, and other legal issues that may arise during a transaction. Different types of policies are available for cannabis businesses, including standard owner’s policies and lender’s policies. To obtain a comprehensive policy, entrepreneurs should work with an experienced agent who can help navigate the unique challenges associated with the industry and ensure proper coverage based on local regulations.

Closing the loan

Navigating the legal and financial requirements for closing a loan in the cannabis industry can be challenging, but there are lenders who specialize in financing cannabis businesses. To ensure a smooth transaction, it’s important to prepare all necessary documentation ahead of time. Here are some key points to keep in mind when closing your cannabis business real estate loan:

• Work with specialized lenders who have experience working with cannabis businesses
• Review and understand all applicable regulations and laws
• Prepare all necessary documentation, including financial statements and tax returns.
• Obtain title insurance to protect your investment

Closing a loan for your cannabis business is an essential step toward securing property for cultivation, processing or retail purposes. By being well-prepared and working with experienced professionals you can navigate this process successfully.

About the Author

Tom Howard, a Cannabis Industry Lawyer and Consultant has practiced commercial law since 2008 when he graduated from law school and got his Series 7 & 66 Securities licenses. He pivoted to practicing litigation for financial institutions before helping cannabis teams form, capitalize, and get licensed. He has concentrated on the cannabis business since Illinois legalized it in 2019. He won licenses for clients in Illinois, Connecticut, New Jersey, New Mexico, Massachusetts, Missouri and has gotten into lotteries in Ohio, Maryland, and Maine. He became a Certified Ganjier in 2021. He chairs the ISBA’s section council for Cannabis Law in 2023.