These Are The Top Real Estate Challenges Impacting The Marijuana Industry
Marijuana is now legal in 26 states and Washington, DC, but it's incredibly difficult to lock down real estate to start a cannabis business. With marijuana still being illegal at the federal level, the negative stigma surrounding the industry and its expensive overhead, businesses looking to cultivate, store and sell cannabis are having a hard time expanding their commercial footprint. The following professionals elaborated on some of the challenges the industry is experiencing grabbing real estate.
Jaret Christopher, Tech Soft Advisors Managing Partner
"There is no question, the cannabis industry is poised for growth, but finding an approved property or building is no easy task. Unlike 'mature' markets such as Colorado, where there are 900-plus licensed marijuana businesses, the newer legalized states have much tighter real estate zoning restrictions, which results in a lack of inventory.
Part of the problem is that no playbook exists for local municipalities to follow. What we are seeing is limited inventory due to strict zoning requirements combined with landlords unwilling to sell or lease properties to marijuana businesses. Even once a property is secured, building decisions (i.e. type of security systems, sprinkler systems, etc.) are often made on a case-by-case basis at the local government levels resulting in additional costs and delays.
More than half the initial investment in a new marijuana business is contributed to either real estate or real estate-related purchases and equipment. Startup costs for a marjuana business can easily exceed mid to high seven figures, so one of the biggest challenges in acquiring real estate is capital ... Some entrepreneurs getting into this business don’t realize how complex and sophisticated the industry really is, so if you need capital to buy real estate or fund your operation, finding 'smart-money' investors can help you avoid pitfalls and costly mistakes."
Chris Muoio, Ten-X Senior Quantitative Strategist
"The challenges facing this industry vary a lot state-by-state given regulations. There are concerns that some landlords have about leasing to marijuana operations, the main one being it's still illegal at the federal level. There are still banking restrictions on the businesses, so there’s a lot of cash flow uncertainty, which landlords don’t like when they’re leasing out over longer periods of time. The whole financial and banking uncertainty aspect can really constrain the growth of this industry."
David Black, Berger Singerman Partner
"In light of challenges at both the lender and landlord level, many marijuana businesses find themselves forced to own the real estate on which they operate and finance the property themselves or through private sources (e.g., friends and family, angel investors, private debt funds and hard money lenders).
These issues are more prevalent in states that have more recently legalized marijuana, since many landlords (and some lenders) in states that have had legalized marijuana for an extended period of time have gotten comfortable with marijuana operations despite their illegality under federal law.
Marijuana’s status under federal law also impacts the location of a potential marijuana business. For example, the Controlled Substances Act enhances the penalties for marijuana operators if their business is located (i) within 1,000 feet of the real property comprising a public or private elementary, vocational, or secondary school or a public or private college, junior college, or university, or a playground, or housing facility owned by a public housing authority ... Certain municipalities have banned any marijuana operations from existing within their city limits. Additionally, Florida law expands the foregoing federal restrictions to include a house of worship or a convenience business."
David Welch, D|R Welch Attorneys at Law Founding Partner
"It’s very difficult getting commercial lending on marijuana buildings period. You’re not going to get it from a bank. There are banks that discuss it but the reality is this: The largest institutions will not provide funding for purchasing property to be used for marijuana."