Cannabis and Your Commercial Property
With California legalizing recreational cannabis earlier this year, there has been a rush of new investors into the market. There’s not a day goes by that we don’t receive a call from someone that is involved in the cannabis industry seeking a property to lease or buy for either their grow/cultivation facility, dispensary, or retail distribution.
Many of these tenants are willing to pay substantially more than market rate just to secure a location so to a landlord or seller this can be quite attractive. There is of course a down side to this for a Landlord, the federal government still has the right to come close down the operations and potentially seize your property. I have spoken with a few individuals that deal in the cannabis industry and they feel it is unlikely that your property would be seized but the potential is still there, even if they did not seize the property you would be losing your tenant and therefore have a vacant property. A few steps you can take to lessen your losses in a situation like this is a personal guarantee, access to a letter of credit, should they have to close early, (the letter of credit could pay down over a specific time period) or even a much large deposit but short of these items it would be difficult to remediate much of your loss.
Some steps you can take to make sure your potential tenant is a legitimate operator is to confirm their licensing is in order, confirm they have not had issues in the past and be sure to confirm through one of the three licensing agencies: -Bureau Of Cannabis Control, Manufactured Cannabis Safety Branch or the CalCannabis Cultivation Licensing. The type of license required (i.e. cultivator, retailer, testing lab, etc.) will determine which agency will issue the license.
We believe there are some great operators out there so really do your due diligence before passing on them, there could be a good opportunity for you to generate increased lease rates.