The Importance of Real Estate Due Diligence For Cannabis
Cannabis Real Estate: Crucial and Often Overlooked
Say you have a dream of opening and operating a cannabis business. Chances are that dream includes a physical location. Whether you want to have an outdoor cultivation facility or a drive-thru retail dispensary, you’ll need a location for your cannabis business to thrive in.
Real estate is one of the most challenging and overlooked aspects of ensuring operational success for your cannabis operation. Here, we’re going to highlight some of the due diligence steps you should take before signing on the dotted line for a lease or mortgage for your business.
Good Real Estate Means Good Cannabis Business
Everyone knows the phrase, “location, location, location.” It’s even been spun off into the title of a 43-season long reality real estate show. But what does it mean for a cannabis operation? The parameters for identifying ideal cannabis real estate are arguably license specific. A cultivation facility will not have to worry about foot traffic or ease of access for the general public like a dispensary would.
License Types and Demand Will Guide Your Location Search
You’ll ultimately want to find a real estate that meets the demands for the business operation based on your license type. If you’re pursuing a mezzobusiness in Minnesota—and eyeing expansion in the future—you will want a location that can accommodate for such, and those demands are going to be different than those of a dispensary in Manhattan. To succeed, it is best to identify multiple property locations at the onset based on a variety of factors such as price, size, amenities, potential competitors in the area, neighboring tenants, and, crucially, the current zoning of the location along with the municipal government’s attitude towards cannabis operations.
How To Address Zoning and Municipal Governments
Purpose-Based Zoning
Often the single biggest hurdle associated with an already laborious process with real estate in cannabis is dealing with everything at a local and municipal level. This includes zoning requirements, municipal approval, and added restrictions or Standard Operating Procedures (SOPs). You will want to ensure that whatever your cannabis business operation is intended to be that the zoning matches the intended purpose.
While it is possible to change the zoning (say from commercial to light industrial), that requires an often-lengthy municipal process which could involve multiple boards, departments, or commissions. Ultimately, for ease of processes, it’s best to find a property already properly zoned and in line with local and state cannabis rules.
Local Municipalities Hold Approval Power
There are also no guarantees for cannabis approval at a local level and having a sound local business strategy is crucial. Doing research on municipal thoughts and restrictions on cannabis operations is also vital. In nearly every state, municipalities are able to either opt out entirely from allowing cannabis business to operate in their boundaries or implement strict restrictions. Prior to selecting an ideal location, make sure that the municipality is supportive of cannabis and that the process for any sort of additional local permits and requirements go smoothly.
Leasing Vs. Owning Cannabis Real Estate
Through the real estate search, one question often looms large for a cannabis business operator. Does it make sense to lease or own property and facilities? For some, the answer may be obvious. For others, less so. For those on the fence, the answer largely boils down to price. However, it’s important to scrutinize the details of these costs, and the baggage with such.
Flexibility Comes With Cost
Leasing real estate typically is a lower cost on a month-to-month basis, but has added headaches when you add in a landlord (and making sure the landlord is also supportive and understanding of what the cannabis business will be doing when at maximum buildout) and potential buildout limitations. Owning can be costlier but can allow for greater flexibility in business operations and potential cheaper installation or update costs.
Starting Your Cannabis Real Estate Search? We Can Help!
Ultimately, the real estate search and due diligence process for any cannabis business is an arduous one filled with paperwork, compliance needs, and identifying a right property for your business.
Our team of cannabis consultants has extensive experience helping businesses tackle the lengthy real estate search process across 39+ states and endless localities. If you have questions or need additional guidance with your cannabis real estate search, contact the Canna Advisors team directly or book an hourly consultation today.