I recently attended the New England Real Estate Journal’s “Cannabis: The Next Phase in Commercial Real Estate” summit, which brought together a number of local players for networking and a high-level discussion of where the industry stands in Massachusetts. In addition to being fantastic networking opportunities, events such as this allow attendees to get a sense of where the conversation on cannabis is heading, and for us, can be invaluable in terms of helping to anticipate concerns that clients will have and issues they’ll face.
Some of my takeaways:
- Despite the Attorney General’s stance on marijuana, nothing has really changed. For now, the federal government seems content leaving it to state and local authorities to ensure that cannabis industry players adhere to state laws when establishing and operating their businesses.
- When it comes to launching a cannabis business of any kind, it’s critically important to educate people about what your operation will entail, and what it won’t. You need to meet with municipal boards, with community groups, with public safety officials, to really drive home the message that: “Yes, we’re in the cannabis business, but we’re not the big, bad wolf. We’re just a dispensary, or a cultivation facility, or whatever the enterprise may be, and contrary to whatever negative perceptions you may associate with marijuana, we’re invested in helping this community, not hurting it.”
- In that vein, people launching or seeking to expand their cannabis business must realize the importance of local knowledge and connections, because success is ultimately determined at the local level. Knowing how a particular municipality perceives and handles cannabis issues, and being able to identify and work relationships with its concerned citizenry and decision-makers, is invaluable, particularly in the early stages. Take zoning, for example: many cities and towns, even if their bylaws permit cannabis businesses, have their own unique regulations that can be a nightmare to navigate. Having counsel and consultants who can operate at the local level to help move things along can mitigate the many unforeseen challenges that arise.
- As with any real estate-related venture, heed the mantra “location, location, location.” The particular focus of your operation – whether you’re a grower, a distributor, a retailer – is going to play a significant role in helping you determine where to set up your business. For example, if you’re simply growing, you’re likely going to be more focused on square footage than foot traffic/visibility, and thereby less impacted by certain zoning mandates than you would be if you were a retail establishment. For those looking to get into the space, it’s important to scope out multiple locations and research the benefits and drawbacks of each before entering into a long-term lease obligation.
- For cultivators, specifically, it’s important to prioritize energy. You should get an energy consultant involved as early in the planning phase as possible. They can advise on whether you should consider solar power to help offset energy loads, whether you should consider LED alternatives, and the like. Ultimately, they can help design and, in some cases, even maintain a power system that recreates Mother Nature indoors – which is necessary for solid plant (and business) growth – and keeps energy costs to a minimum. Bringing the consultant into the process as you’re moving in to your space is less ideal, but no less important. Less ideal still would be having an assessment done once you are up and running. When these types of decisions get made can mean significant differences to the bottom line.
- Insurance is key, for both tenants and landlords. Many think that, due to the still-present-but-slowly-dissipating-taboo nature of marijuana, they cannot secure insurance; that’s not true. Policies can be constructed in any number of ways, to not only account for simple insurance of the premises and its contents, but also for lost opportunities and things along those lines specifically related to the cannabis business. That said, cannabis policies are not pro forma; they are case-specific and oftentimes require creativity. For example, landlords of multi-tenant facilities in which one tenant is cannabis-related need separate policies for their units. To know what one needs coverage-wise, they should contact their agent at the outset. At present, though, carriers are much like lenders, in that limited numbers want to dive into the cannabis space. Why is that? The reluctance seems to be traced to uncertainties caused by federal regulations, and the Attorney General’s policy, specifically.
- Speaking of lending, because of the hesitance on the part of banks/traditional lenders to get involved, funding is, obviously, limited. As one panelist jokingly (I think) said, “You just have to find rich friends.” Though everyone in the room was already thinking that, it was interesting to hear a panelist say it aloud. That statement is reflective of industry frustration with the lack of traditional lending. For smaller operations, the road is especially tough. Though some municipalities are trying to make it easier for smaller players to break in, those players still need financial backing. Those looking to break in or expand in the cannabis industry need to find the right business counsel that can source suitable financier(s), because they are out there and want to get involved early.