Preventable cannabis real estate mistakes are the number one reason we see ventures come to a halt. We’re not cannabis real estate agents. We’re not in the business of handling the transactional details of buying or selling a cannabis real estate property. But as experienced cannabis business consultants, we do find that there are many cannabis real estate investors working with agents who understand property, but not the current nuances of the cannabis industry. There is a big difference between an agent who happens to work with cannabis real estate and a cannabis business consultant who knows the ins and outs of legal and licensing. More times than not, working with the former tends to end with business development hitting a wall. Starting with the right property for your business sets you up for success and helps overcome many of the challenges your competitors face. Here are 4 reasons why you should consider hiring a cannabis business consultant in addition to an agent.
Reason #1: We Understand Property Permissions
It’s no secret that the cannabis industry is highly regulated and nuanced, and yet we still see investors working with real estate agents to find “green properties” without either party having the in-depth knowledge or experience to know if that property is actually suitable for the investor’s goals. It’s really not the realtor’s fault either. Without cannabis experience across multiple counties and municipalities, it’s nearly impossible for the average real estate agent to stay on top of current cannabis regulations and permitting specifications.
Involving a cannabis real estate consultant right from the beginning of your property search will save you valuable time (and considerable headaches), by determining if the property you’re considering has or can get the type of permitting to meet your business goals. They’ll be able to guide you through the process of understanding not only the permissions for your property zoning but also related building codes that you need to factor into your purchase decision. Not having this knowledge BEFORE purchasing can result in significant project delays and budgeting concerns. A Property Suitability Analysis, as part of your cannabis property search, is the best way to mitigate these risks.
Reason #2: Your Green Zoned Property May Not Be Suitable for Your Type of Business
Let’s take the permit and licensing process above and add an additional degree of complication to it. You may have your business plan for your cannabis manufacturing operation. Excellent! And you may have found a green-zoned property that allows for cannabis manufacturing with C2 Commercial Zoning. Well done! However, if your cannabis manufacturing business plan calls for producing extracts, that may require volatile materials to process the product. Suddenly, regulators have put the brakes on your business because Type 7 manufacturing is not allowed for your type of commercial zoning. Meanwhile, you’re left paying the monthly mortgage on your new property that isn’t allowed to operate as you intended it to.
This example, based on a true story, is what happens when you miss specific conditions or terminology buried in a county’s application language. In this case, while the property was commercially zoned and approved for cannabis manufacturing, it did not include the use of volatile materials due to its relative proximity to residential properties and sensitive commercial properties. Such oversight is not uncommon, however, given the amount of technical language and conditions that can be buried in regulatory paperwork.
The type of property analysis needed has less to do specifically with cannabis itself and more to do with how operating a cannabis business intersects with the surrounding properties. It’s important to take a thorough look at who lives around the business you’re looking to open and what their concerns may be. It’s also about understanding the landscape of other businesses around you and how your business may impact theirs (particularly when it comes to nearby schools, daycares, and religious facilities).
Such a discovery puts the cannabis real estate investor in a very difficult position—do they change their plan and try the permitting and licensing process again? Or do they attempt to sell their new acquisition and attempt to purchase a new cannabis property that meets their needs? In either unenviable scenario, the business owner is faced with a significant increase in time to market as well as an increase in the cost of holding and permitting associated with the property.
This level of investigation into a property’s usage is not typically within the general scope of a real estate
agent’s work, with the responsibility put on the buyer to perform this degree of due diligence. Unfortunately, even for the savviest business professional, it can be hard to know what you don’t know in an industry as technical as cannabis. Speaking with a cannabis real estate consultant is a worthwhile investment of your funds (and your valuable time).
Reason #3: We Understand How Your Property May (or May Not) Work in the Current Cannabis Market
It can be exciting to discover a green zoned cannabis property that can be permitted for the type of cannabis operation you’re looking to open. The market availability for their properties can be slim and competition fierce for a highly desirable piece of land. Some aspiring cannabis entrepreneurs, fatigued by the searching process, become overly enthused when they discover the property that appears to meet their needs. This presents another opportunity for problematic decision-making if the investor is not taking into consideration how this property fits into the landscape of the current cannabis supply chain and market demand.
For example, you may have already discovered that there are a fair number of available cannabis properties in rural areas across California and other states. As more counties realize the potential tax revenue that can be generated from cannabis, they’re loosening zoning restrictions and allowing for more permits to be granted. However, there may be a few problems that arise from setting up shop in these less-populated areas.
Getting a cannabis market analysis will help you determine if your property is strategically well-suited for the type of cannabis operation you’re looking to start. It will also help you understand some of the hurdles you may need to address in the short and long term.
Understand Your Utility Sources
One major factor is access to utilities. Cannabis operations often require significant amounts of power. And as much as we’d like to say that you can easily launch your cannabis cultivation business off of solar alone, that is not the reality for the majority of owners. Understanding the type of power your business will require, the potential electrical upgrades you’ll need to make (like 3-Phase power if you’re required to operate a chiller), and if you have access to these utilities is an important point that should be evaluated before you sign off on the purchase of any cannabis property.
Consider Your Consumers
Another consideration is your proximity to both your suppliers and your consumers. A cannabis cultivation business located at the northern end of California may find beneficial growing conditions. However, if they’re trying to get their product in the hands of So-Cal consumers, they’ll be faced with additional burdens related to the transportation of materials over the distance and will not be as competitive price-wise as those cultivators located closer to their consumer market. The more hands your product needs to exchange to reach the end consumer, the higher your potential business risk of loss and the lower your profitability will be.
Plan for Future Growth
The final (and perhaps most important) factor to consider here is if the property will allow for vertical integration in the future. While our clients often come in with one specific type of cannabis operation in mind, we always encourage them to think critically about how they will scale or vertically integrate in the future.
Trust us; if you have the savvy to make it in the first phase of your cannabis business, it won’t take long before you want that green to grow. Vertical integration makes sense for many cannabis entrepreneurs; however not all properties allow for that. Through a thorough Market Analysis, a cannabis real estate consultant will help you evaluate not only the property’s current potential but also lucrative opportunities in the future.
Reason #4: We Can Assess the Actual Value of the Property
There is a reason that nobody puts their full faith in one of Zillow’s famous property Zestimates. Sure, Zillow can come up with an approximate value of a home based on its square footage, bedrooms, bathrooms, and comparable homes that have recently sold in the area. But Zillow is not going to see the mold that hasn’t been remediated from a water leak or the fact that the roof and air conditioner both need replacing in a few short years. People place more trust into their real estate agents and appraisers to value a property because they have the experience in knowing homes and have the full picture of both the good and bad that the home has to offer.
Add cannabis to the property purchasing decision, and it becomes an additional layer of pricing complication. It’s not surprising that a real estate agent could over or undervalue a cannabis property. Just as Zillow cannot see and assign value to a unique aspect of the property, an agent that is not well-versed in the cannabis industry cannot see the full picture of the property.
Without knowing the benefits and issues we’ve discussed above (property permissions, suitability, and marketability), they are not going to be able to paint an accurate picture of what the property is worth. There are almost certainly challenges (and/or benefits) to a certain cannabis property that would only be identified by a cannabis industry expert. Having certain licensing and permits (or the ability to acquire them) has value. Having barriers to cannabis business establishment decreases worth. And making a cannabis real estate purchase or sale decision without factoring in those components is leaving money on the table!
When To Bring a Cannabis Real Estate Consultant into the Buying Process
When should you involve a cannabis real estate consultant into your property purchasing process? As soon as possible. While the development consultants at BeGreenLegal provide guidance at any stage of the process, the sooner you can have a cannabis business consultant on your side, the smoother your process should be. Our goal is to understand your goals and provide honest advice about what will work and what needs to be re-worked.
If you don’t yet have a real estate agent you’re working with; we can also refer you to our network of brokers who are experienced in integrating their property knowledge with our extensive cannabis industry experience. We also feature property listings on our page based on various cannabis properties and businesses that are currently on the market.
The reality is that we’re agnostic when it comes to your cannabis real estate purchase. Unlike a real estate broker, our compensation doesn’t depend on the value of the property nor the amount of time it takes you to find that property. We are here to make sure that all of the right questions are being asked, so you have a thorough analysis of your purchase. And when you’re successful in your cannabis business, we celebrate that success as well. Isn’t it time you scheduled your cannabis real estate consultation with us?