Real Estate Challenges For The Cannabis Industry

As the cannabis industry continues to be the fastest-growing industry in the United States, real estate continues to be one of its critical factors for success. And while the top three considerations are the same with any industry (Location, location, location), other factors such as renovation costs, parking, and building codes are crucial too. The cannabis industry has the added challenge of state and municipal laws specific only to them.

As soon as a cannabis company is awarded a license, it should strive to break ground as quickly as possible to get ahead of the competition. The type of license awarded or the state a business is located in can affect its real estate needs. 

Some states require the real estate to be sourced before submitting the application. Some states do not have real estate requirements for social equity licenses. 

Due to lease contingency periods or diligence periods, cannabis businesses frequently have longer-than-standard real estate negotiations. Awareness of regulations, submission deadlines and the timetable for awarding licenses are all critical aspects that come into play for erecting your building.

The typical construction costs that frequently go over budget and extend timetables have been exacerbated by the numerous challenges brought on by COVID-19. 

Cannabis companies must estimate construction time and expenses accurately. This way, construction can proceed swiftly after license approval.

In some states, the demands and expectations can be daunting. Crafting a sound financing strategy is imperative.

Within 12 months of receiving a license in Georgia, companies must be fully operational, or the license will be revoked. That is a very narrow window for constructing a facility, concluding a plant cycle, extracting and manufacturing the oil, and packaging the products in tamper-evident mylar bags for retail. 

With different marijuana regulations in each state, the cannabis industry is forced to be flexible and deal with ambiguity. 

It’s crucial for cannabis companies investing in commercial real estate to collaborate with consultants who fully understand how to navigate the legislative environment effectively. In more and more instances, that means working with brand new regulations.

Of course, honesty is vitally important when renting or leasing space. Any business must be transparent with the landlord about the intended use of the property – to do any fewer risks winding up in landlord-tenant court. Prolonged court cases are bad for business.

Notably, some regulations don’t require a business to state its property’s intended use. And, often, the seller or landlord will hike up the price when they know it’s for a cannabis business. Scarcity coupled with profitability can sometimes inspire greed.

A final consideration is property taxes. Savvy businesses will be familiar with Internal Revenue Code Section 280E, which rejects deductions and credits for any amount paid in trafficked or controlled substances business trades.

IRS code 280E doesn’t consider a cannabis business’s lease or interest payments as deductible. Tax deductions are an essential consideration when making an important real estate decision. 

Conversely, some jurisdictions provide expedited zoning or tax benefits to cannabis companies because of the anticipated job growth that follows. A knowledgeable accountant can be a game-changer.

As the cannabis industry continues to be the most exciting, profitable, and fastest-growing industry in the country, it’s incumbent on those in the industry to stay informed about all of the potential challenges.