Juilie Weed, (yes that is her real name and the only name I have encountered I almost like better than my own), writes for Forbes regarding the marijuana industry and its entrepreneurs. This week Julie wrote on a “square one” issue for Cannabusinesses – finding a space in which to do their business.
It’s tough finding a landlord for a Marijuana company. Building owners worry that federal policies or rogue operators could cause their building to be seized. More attention has to be paid to specific regulations. Landlords don’t want to be seen as bad neighbors bringing in an unsavory element. The upside to these risks for landlords however is that they can often charge a higher rent and garner a greater overall return.
I asked George Stone and Potter Polk, partners at Kalyx Development the factors that marijuana businesses should consider when looking for a landlord. Kalyx Development is a Manhattan-based real estate company that specializes in marijuana production, retail distribution and production facilities, with properties in Colorado, Oregon, Washington, New Mexico and soon California.
Stone and Polk take an active role financing and designing the facilities on their properties. They also help navigate the regulatory landscape for renters, and work with local law enforcement officials. This is a typical arrangement in the industry for two reasons according to the pair. The first is that marijuana businesses typically have a hard time finding loans so it is often the landlord who has the money to acquire the property for cash and assist with the tenant improvements and construction. Also, the landlord is at risk if the operation is run illegally, so has a stake in making sure regulations are followed to the letter.
Here’s what they said businesses should look for:
- Experience with Cannabis Tenants: Like any other logistical and technical businesses, the Cannabis space is highly specialized and without an expert landlord, tenants could find themselves with constraints and business risks that will only be identified when it’s too late. Experienced owners are also more likely to know all the laws and regulations involving security, zoning, etc.
- Debt-free Properties: Federal regulations make financial institutions nervous about lending on facilities used for Cannabis-related purposes. A bank that finds a cannabusiness on its cusomter’s property might threaten to cancel the mortgage, so an owned building is best.
- Financial Capacity: Can the landlord make necessary improvements to the property so that it accommodates the user’s business and complies with local regulations? If an expansion is required can the landlord facilitate it onsite or secure another property? Is the landlord willing to finance a portion of the tenant’s improvements?
- Expertise with Public Utility Issues: Cannabis businesses — especially indoor grow operations — require substantial water and power capacity. Can the landlord help work with local utilities or supply needed resources for improvements?
- Long-term Lease: Most importantly, is the landlord offering a long-term lease that will allow tenants to appropriately amortize set-up costs and operate securely? As the Cannabis industry grows, appealing properties may come in short supply due to regulatory restrictions — tenants need to make sure they won’t find themselves without a place to go and at the mercy of their landlords to continue operating their businesses.
Source: Top Five Characteristics A Marijuana Business Should Look For In A Landlord – Forbes
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