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Overcoming Real Estate Roadblocks in the Cannabis Industry

Overcoming Real Estate Roadblocks in the Cannabis Industry

The number of marijuana dispensaries in the United States is expected to grow this year as more states legalize weed, the federal government considers legalizing the substance nationally, and marijuana becomes more mainstream overall and sees growth through the pandemic. 

One of the biggest challenges that dispensary owners face is finding a location.

Even though it’s 2021 and recreational marijuana is legal in 15 states plus the District of Columbia, and medical marijuana is legal in another 33 states plus the District of Columbia, there are still a lot of landlords who want to work with cannabis companies.

In this post, we will go over the most common and frequently encountered roadblocks in the cannabis industry and how to overcome them.

Roadblock #1: Zoning 

Zoning requirements vary by market. Commonly, dispensaries must be a certain distance from public services like schools, churches, and parks. This, of course, further narrows the options for retailers. 

The good news is that large players are coming up with a solution to this challenge by dedicating real estate departments that focus on vetting locations and navigating regulations. We are also seeing a lot of commercial real estate practices, and portals specialized in marijuana businesses pop up across the country. These operations are often small and specialize solely in navigating the country’s budding marijuana business opportunities. 

A large part of their specialization is knowing what clauses to include in marijuana store leases that are not commonly included in other retailer leases.

Roadblock #2: Getting the License to Sell Marijuana in Tandem with Lining Up the Real Estate 

The timing of licensing is another roadblock that many marijuana dispensaries face. Some states, like California, require retailers to first have control over a particular site, whether through a lease or an option to lease before they can even apply for a license. Most states also have a limited number of marijuana sales licenses. This means that when one becomes available, there may be a flood of prospective retailers applying.

All during the commonly months-long licensing process, would-be retailers are building out their spaces and paying rent for it before they can even sell a single bud. Of course, this isn’t cheap and can cost upwards of hundreds of thousands of dollars. Then, if the license doesn’t end up getting approved, that money is just a loss. This problem is especially prevalent in highly populated areas where most mixed-use buildings aren’t owned free and clear, meaning a lender behind a building still has the final say on any deals for dispensaries and other businesses. 

Roadblock #3: Reluctant Landlords

Some landlords are still under the notion that marijuana businesses will attract illegal activity and increased hassling by law enforcement.

Even in a state like Oregon, where recreational marijuana is legal and the state’s legislature passed House Bill 3460 to authorize and regulate dispensaries, some landlords don’t even know the laws exist.

One great way to overcome this roadblock is to arm your potential landlord with the power of knowledge! Come to your initial meeting with them ready to answer any questions and concerns they may have. Bring some paperwork with you about laws in your state regarding the sale of marijuana and distribution regulation. Ensure them that your operation is completely legal and you are a functional, reputable, and legitimate business.

Some more tips to winning over hesitant landlords include:

  • Bring your professionalism: As we said, you need your landlord to understand that your business is just as viable and you are just as professional as their tenant down the street who sells watches. Do this by presenting him with your sales figures, showing up to showings and meetings on time, returning their phone calls as soon as you can, and be polite and courteous. Unfortunately, some people have preconceived notions that canna-businesses are run by criminals or shady people; it’s up to you to dispel that myth.
  • Preparation: As we mentioned, you must be prepared for whatever the landlord is going to ask you. Some landlords may worry about the kind of clientele your cannabusiness will bring to their neighborhood. Did you know that studies show that dispensaries actually reduce crime in the neighbors they are located in? Bring a copy of this information to ease the landlord’s concerns and debunk any preconceived notions in their head.

Finding that perfect location for your cannabusiness is most definitely a bit of a challenge and will likely be a long process. Search for cannabis retail locations for lease on 420property.com!

February 19, 2021Comments Off
Cannabis Industry Loans & Financing – Possibilities Looming After Legalization?


Since the 1990s, when states started passing laws that made medical cannabis legal within their jurisdictions, businesses in the industry have faced difficulty funding their ventures. A handful of traditional lenders have loosened their restrictions, but it’s still incredibly hard for anyone in the cannabis industry to get a loan or other type of financing without going to private sources.

That may change soon as a Democrat-led Congress and White House consider changing laws that make traditional lenders wary of cannabis. In the meantime, private lenders outside of the traditional banking system offer the best option for people who want to start or expand their cannabis businesses.

Federal Cannabis Prohibition Makes Funders Worry About Legal Consequences

Over half of the states in the U.S. now have laws that legalize medical or recreational cannabis. Most states that have legalized cannabis have reputations as liberal places. That caricature looks accurate when focusing on states that allow recreational cannabis sales, although Alaska is an obvious outlier.

Banks Feel Pressure to Turn Away Cannabis Businesses

Many states passed recreational and medical cannabis laws based on the promise of collecting additional tax revenue that they could use to pay for education, drug rehabilitation, and other critical programs. Outrageously, many of the cannabis companies responsible for raising those funds cannot even use banks. A state like California might say that dispensaries and farms operate legally, but the federal government still follows laws that categorize tax-raising entrepreneurs as criminals.

The conflict between state and federal laws have created a lot of concern in the banking industry. Since the federal government regulates banks, many of them choose to avoid all cannabis activities. Knowingly opening accounts for cannabis businesses could lead to charges of money laundering from the federal government. Even under the Obama administration, which said it would largely ignore cannabis activity in legal states, banks worried about the repercussions of dealing with businesses operating on the legal fringe.

Funding Becomes Impossible in a Conflicted Legal System

Banks concerned about being labeled as money launderers have similar concerns when cannabis companies apply to borrow money. Accepting the loan application could make the bank look like an accessory to large-scale drug manufacturing and distribution.

To make matters worse, the federal government could target the person responsible for accepting the loan application. That person could face prison time and professional consequences.

It’s unlikely that banks worry about such consequences with Biden in the White House. He will most likely take a position similar to Obama’s. But banks know that political positions matter much less than laws. While the Obama administration may not have focused on above-board cannabis businesses, the Trump administration took a different perspective. Paranoia about how quickly political influence can shift became apparent when former-president Trump made Jeff Sessions the U.S Attorney General. Few politicians have a more rabidly anti-marijuana perspective than Sessions. With Sessions in charge, anything could happen to the rapidly growing cannabis industry.

Banks take the same view when they consider extending loans and other types of funding during the Biden administration. They know that the current president will only hold his position for a few years. After that, the federal government’s priorities could change overnight.

Only Congress can pass laws that make banks feel safe lending money to cannabis businesses. Until that happens, banks will not take any risks in the industry.

Private Funding Offers an Alternative to Bank Loans

Private cannabis lenders have fewer concerns than do banks and credit unions. Organizations within the traditional banking system have a lot to lose by stepping out of line. Even losing FDIC accreditation could force a large bank with multiple locations to close. An ongoing investigation into illegal activities would also force branches to close while the federal government snooped through their documents and interviewed employees.

Private funders don’t need to worry as much about the federal government. As long as they work with cannabis businesses that follow state laws, they shouldn’t run into legal issues by funding dispensaries, farms, and labs that make concentrates, edibles, and similar products.

Do Cannabis Businesses Really Need Outside Funding?

Cannabis businesses need outside funding just as much as do businesses operating in other industries. While a cannabis business might quickly recoup the money it borrows, it still needs to pay for upfront costs months or years before it earns its first dollar.

Even growing cannabis sold as smokeable flowers takes months of work. Farmers can expect to spend:

  • About one week waiting for seeds to germinate.
  • Three to eight weeks for the plants to grow stems and leaves.
  • Five to sixteen weeks for the plant to grow flowers.
  • About four weeks to harvest, dry, and cure the flowers.

A cautious cultivator will not plan to earn money on a crop for at least seven months. During that time, the farm’s expenses include paying for labor, electricity, water, soil, nutritional supplements, lighting, and pest repellants.

Of course, the cultivators also need to pay for the buildings or land where they plan to grow cannabis. Browsing the property listings advertised on 420property.com, potential buyers can see that land for sale can easily exceed $10,000 per acre. Farms become much more expensive when they include buildings for processing cannabis and storing equipment. The smallest hydrocarbon extraction closed-loop system from the popular equipment manufacturer Iron Fist Extractors costs thousands of dollars. That doesn’t include the price of plant material and solvents.

Entrepreneurs that want to purchase active dispensaries can expect to spend millions of dollars. Even a small dispensary in California can cost at least $4 million. Delivery businesses often cost $250,000 or more. Unless the buyer has millions of dollars on hand, the person will need to find funding to help pay for the purchase.

Equipment for making cannabis and hemp concentrates also costs a lot of money. Growing interest from consumers makes purchasing extraction equipment worth the investment. Still, business owners can’t enter the market until they can buy reliable equipment that does the job well.

Congress May Change Laws, But It Hasn’t Happened Yet

Congress could pass cannabis laws that make banks feel comfortable working with the industry. Even a law that decriminalizes cannabis would make it easier for banks to fund cannabis businesses without concern.

Some members of the 2021 Congress have already issued statements promising to pass laws that will help banks support legal cannabis businesses. Promises from a few liberal members of Congress from states that have already legalized recreational cannabis, however, might not mean much. Until Congress passes a comprehensive law that either decriminalizes cannabis at the federal level or gives banks permission to work with cannabis in legal states, the banking system will shy away from opportunities.

Frankly, banks should shy away. Promises have been made many times before. Still, the country has a confusing system of cannabis laws.

Private Cannabis Credit Issuers and Lenders Fuel Industry Growth

Many private cannabis credit issuers and lenders have competitive rates and products that match those from traditional banks. The biggest difference is that private lenders are willing to work with businesses in the cannabis and hemp industries. Some of of the private financing options available in the cannabis industry include:

  • Lines of credit for cannabis and hemp businesses.
  • Equipment financing and leasing.
  • Working capital loans.
  • Short-term working capital loans.
  • Asset-based and collateralized loans.

Find cannabis industry financing on 420Property.com!

February 19, 2021Comments Off
Real Estate Sale-Leaseback Deals on the Rise in Cannabis Industry

The sale-leaseback is a unique financing option that a lot of cannabusinesses are turning to. The transaction is neither debt nor equity financing; think of it more like a hybrid debt product.

With the sale-leaseback, a company doesn’t increase its debt; instead, it gains access to needed capital through the sale of certain assets and then leases those assets back to continue operations. For cannabusinesses, this can be in the form of selling any cultivation, processing, and storage real estate in order to obtain much-needed operating capital and then lease it back. This kind of transaction is perfect for cannabis companies because think of all the land and businesses cannabis operators use—from land, warehouses, farming machinery and retail space, these are all assets with great financial value.

What Is a Sale-Leaseback?

Cannabis operators have restricted financing options, which leads many to struggle with liquidity issues. In a sale-and-leaseback, commonly known as just a sale-leaseback or even just a leaseback, a cannabis operator sells their property (greenhouse, warehouse, dispensary, etc.) to a REIT and then leases it back. This allows an operator the chance to get some fast cash without reducing their ownership interests. 

In essence, the sale-leaseback allows the cannabis operator to take the money they make to invest and help grow their business instead of having their equity tied up in real estate. This allows them to yield a higher return than owning real estate.

Sale-leasebacks are extremely common in other non-cannabis real estate sectors, like office buildings, apartment complexes, shopping centers, warehouses and hospitals.

But, given that cannabusiness is a relatively new industry and the fact that cannabis is still illegal at the federal level, there are a limited number of cannabis REITs that operators can work with.

How Does a Sale-Leaseback Transaction Work?

A leaseback transaction for real estate comprises two agreements:

  1. The property’s current owner-occupant agrees to sell their asset to the investor for a set price.
  2. The new owner agrees to lease the property back to the existing tenant under a long-term leaseback agreement and therefore becomes the landlord.

The transaction allows a seller to remain the tenant while transferring ownership of an asset to an investor. On the other hand, the purchaser is purchasing a property with a long-term tenant already in place, which allows them to generate cash flow immediately.

In a sale-leaseback, the seller-tenant no longer has an ownership interest as they essentially forfeit the right to receive any appreciation on the value of the property. If they stop being able to make the monthly payments, they will have to renegotiate the lease, or they may be evicted.

Why Cannabis Companies Are Turning to Sale-Leasebacks

Whether for working capital or expansion projects, or anything else, sale-leaseback transactions are intended to give companies a much-needed financial boost by selling an asset with substantial value. The best part is, as long as they’re willing to lease it back from the new buyer, they don’t have to give up that asset. Here are some benefits that are causing cannabusinesses to turn to sale-leaseback transactions: 

  • Sale-leaseback is an increasingly viable financing option for cannabis businesses as access to funding from venture capitalists, family offices, and wealthy investors is limited in the space. What’s more, traditional financing from banks is completely out of the question because cannabis is categorized as a Schedule 1 drug.
  • Sale-leaseback transactions are an ideal way to raise cash while retaining access to key properties.
  • Since there is still a lot of ambiguity around the legalization of marijuana federally, it’s very hard for cannabusinesses to get loans.
  • A sale-leaseback is a long-term lease agreement that locks in expenses.
  • Selling real estate and leasing it back frees up sanded capital, which allows the company an opportunity for growth capital and the chance to reinvest in their core operations. The proceeds from a sale-leaseback transaction can be used to invest in different aspects of the cannabusiness operations, such as equipment and inventory purchases, expansion, and new hire training.  

 Here are some examples of recent sale-leasebacks in the cannabis space:

  • Chicago-based Cresco Labs made a $50 million sale-leaseback deal with GreenAcreage Real Estate, a REIT in New York providing sale-leaseback and construction financing to companies operating in the cannabis industry.
  • New York-based multi-state operator (MSO) Columbia Care raised $35 million by selling and leasing back six properties in Illinois, California, and Massachusetts. The properties were purchased by New Lake Capital Partners out of Maryland.
  • Green Thumb Industries, an MSO based in Chicago, made a $39.6 million sale-leaseback deal for a cultivation facility in Pennsylvania with San Diego-based Innovative Industrial Properties.
  • New York-based MSO, Acreage Holdings, signed a $72 million sale-leaseback deal for properties in Florida, Massachusetts, and Pennsylvania with the buyer GreenAcreage.

In the short term, we expect marijuana companies to continue to use sale-leaseback transactions at an increasingly large rate. That’s because it’s become harder for marijuana companies to raise funding in the past couple of months thanks to falling stock prices of cannabis companies that aren’t turning a profit. This will lead sale-leaseback deals to become even more popular. However, in the long-term, as marijuana becomes more and more accepted, it’s likely that traditional funding sources will get on board with helping cannabusineses. This leaves the future of sale-leaseback transactions unknown.

Search for cannabis properties for sale and cannabis properties for lease on 420Property.com.

February 19, 2021Comments Off
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