While the cannabis industry continues to broaden, business owners face a unique number of challenges, particularly when it comes to their real estate.
Unlike their traditional industry counterparts, marijuana businesses must work through a complex, fragmented regulatory landscape and a financial sector that remains wary due to the plant’s federal illegality.
These factors make securing real estate a critical and even daunting task for operators.
Despite these challenges, the industry presents opportunities for growth.
The total U.S. economic impact generated by regulated cannabis sales could top $112.4 billion in 2024, which is about 12% more than last year, based on an analysis available in the 2024 MJBiz Factbook. This growth is driven by increasing legalization at the state level, as well as rising consumer acceptance of cannabis and its applications for medical use.
For cannabis businesses, the ability to work through the industry’s unique real estate challenges can be key to long-term success.
The regulatory and licensing world
One of the main challenges in cannabis real estate is the regulatory environment. Since marijuana remains federally illegal in the U.S., state and municipal regulations vary widely.
For operators, it is crucial to have an understanding of local state laws, as well as zoning regulations and licensing requirements. Engaging with local government officials and staying informed about legislative changes can help operators anticipate and adapt to regulatory shifts, such as those requiring a cannabis business’ location to be approved before it even applies for a license.
Remaining proactive about regulatory changes and maintaining lines of communication with regulatory bodies also provides operators with a competitive edge in the market.
Relationships with the community
Building a positive relationship within the community is not just essential but necessary for the long-term success of a cannabis operation. This can not only help mitigate opposition but also foster local support as companies work through the licensing process.
Operators should be proactive in addressing community concerns, participating in local events to demonstrate their commitment to being responsible, as well as highlighting the positives of bringing jobs and revenue to the area.
Finding a key location
Whether locating a retail outlet or cultivation facility, those wading into the business should select locations that comply with local zoning laws and are strategically positioned to attract customers and streamline logistics.
Proximity to target markets, ease of access, the ability to hire quality laborers, and visibility are key factors to consider, especially as one conducts thorough market research and feasibility studies to help make informed decisions about site selection.
Property acquisition and leasing
Once a location has been found, the next hurdle is to acquire or lease the property. Many will be unable to rent to marijuana operators given the plant’s illegality, and lenders must approve the site’s use as a marijuana business—something many large national banks will not do.
To overcome this, operators should educate potential landlords about the cannabis industry’s stability and growth potential and create lines of communication early to navigate any barriers that may occur.
Securing financing
Banks are limited due to the federal status of marijuana. However, alternative financing options include private debt, cannabis-related equity funds, and specialized real estate investment firms.
Building strong relationships with financers can be instrumental in overcoming financial and capital constraints.
Compliance and security measures
State regulations often mandate security measures, including surveillance systems, access controls, and storage solutions. Operators should work with security consultants to design security plans that not just meet regulatory standards but protect their assets.
The cannabis industry is characterized by its rapid change and innovation. By understanding its unique hurdles and dynamics and addressing them proactively, operators can position themselves for success and contribute to the growth and legitimacy of the industry.
