Over the recent years, the legalization of cannabis has been an ongoing debate in different states.
As a result, many states have legalized cannabis, giving real estate investors a new field to venture into. The trend will likely continue in the next few years as in the U.S, most of the states that have not legalized medical cannabis are considering doing it.
The marijuana industry is growing rapidly, creating more opportunities for investors, entrepreneurs and even large international corporations. More real estate companies are raising funds to increase their market share through private and public investment.
Probably you might be interested in investing in cannabis real estate. Here are some things you need to know about this budding real estate sector.
Why should you consider cannabis real estate?
There are various reasons investors may consider adding marijuana real estate assets into their investment portfolios. As a result of increasing legal cannabis use, investing in marijuana real estate is a lucrative financial decision with low risk involved.
Although the industry is booming stills, there are barriers to entry into cannabis. The major barrier is that licensing is limited to individuals with a piece of real estate located in the appropriate area. You will be required to meet specific guidelines and restrictions depending on the community surrounding your property.
Which is Better, Renting or Buying Your Cannabis Property?
Securing a strategic location is among the initial steps when starting a business. If you are an entrepreneur seeking to invest in cannabis real estate, there are two ways you can get a piece of real estate. You can either lease it or buy it.
Buying your cannabis estate
Purchasing a property increases the value of your business because it enables you to customize your operations, and it may have a high return on investment in future.
In addition, securing a license to carry out the operation in your facility may increase the value of your property.
Although purchasing a property is the most appropriate alternative for new entrants in the cannabis business, it can become a financial burden, especially if the market drops. Liquidating a property with a constructed facility is often easy, but this will heavily depend on the fluctuating market.
Ideally, from an investment perspective buying real estate and finding a licensed individual to operate is an ideal approach. Besides making money by having a green-zoned property, you can also make deals with the licensed operator and get a share of the profits from their operation.
You should not worry if you cannot afford to buy a property for your cannabis business. Often a new business may not have enough capital to buy a property, making leasing a favorable alternative for you.
If you do not intend to stay in business for long, leasing is the smartest alternative to consider. The cannabis industry is in its infancy, and though it is growing, it is a high-risk industry because of the wavering opinions on marijuana and its legality.
Leasing a property to conduct your cannabis operations is a lower-risk alternative. However, there are a few challenges associated with rented spaces. One of the challenges is that you may find it more difficult to secure insurance, particularly if you are in a 420-hostile market.
Opting to lease a property for your cannabis operations depends on your flexibility. When leasing, you may be required to confirm your business to the permitted operations in a specific marijuana property. Therefore, if you have a rigid cannabis business idea leasing a cannabis property would not be ideal for you.
What should you consider when choosing your property?
When buying or leasing a property, it is important to consider your preferred cannabis operations. Thus, there are several factors to consider when picking a cannabis site. Here are several special considerations when choosing your marijuana property.
If you plan to establish a cannabis cultivation business, location should be your primary consideration. For an outdoor farm, you have to evaluate the location’s climate to see if it is ideal for your operations. You should find a site where the climate is temperate and predictable to support the profitable crop.
Another factor for an outdoor farm may include soil quality, water table, good run-off frequency of storms and if it is possible to supplement those necessities if they are unavailable.
What if you are considering an indoor farm? First, you should consider if there is enough space to build a greenhouse or indoor grow facility. If the selected space has a ready-made structure, you should assess if it is spacious enough to accommodate enough lights for your grower and if it meets the power requirements for your crops.
It is advisable to liaise with a consultant in marijuana real estate to inform you about the best location depending on your planned operations.
Location is a key consideration in establishing a marijuana manufacturing plant. If you are operating in a leased property is important to ensure that the landlord embraces the idea and will allow you to operate a kitchen.
The extraction process is complicated, and you may need to use chemicals and equipment that may be considered harmful. As a result, insuring your business and the rent may be higher.
You will also require a sufficient electricity power supply to meet the demands of the kitchen. Thus, the facility you select should be able to handle all your electricity demands. You should also consider its capacity to meet the power demands once your business expands.
Risks involved in cannabis real estate
Any investment is associated with specific risks. Marijuana real estate is no exception, so you must select your operator carefully. The existing regulations are more attached to the property’s license than the operator. While it is possible to change your operator, you can hardly change the location of your property. Thus, you need to find an area where your property will easily be rentable to another cannabis operator if your tenant vacates it.
The conflict between the state and federal law since cannabis operations remain illegal at the federal level is the biggest risk in marijuana real estate. You may risk losing your property through federal seizure or criminal risk because the federal law still inhabits cannabis-associated activities.
In conclusion, the growth of the cannabis market is providing real estate investors with a real investment opportunity. The sector is growing rapidly, and you should consider investing in cannabis-linked properties.