The Cannabis industry is booming, and despite the conflicting legal and regulatory status between the state and federal governments, Experts project that it will expand up to 75.09 billion—in the coming years.
As a result of this increased demand, more investors are jumping on the train and searching for more compliant zones to establish their cannabis business.
However, as with every investment, there are fears and concerns—even worse for a very ethical and consequential business like Cannabis. One important question many investors ask is, “How do I guarantee a return on my investment?”
A direct investment in cannabis companies can be devastating, especially if state laws change down the line. This is why we are taking a deep dive into a more indirect and safer approach that can yield high profits while protecting your investments using cannabis real estate.
What You Should Know About Cannabis Real Estate?
Cannabis real estate involves properties used for cultivating, selling, and distributing cannabis products. While this looks simple, it is not a walk in the park. Cultivating Cannabis commercially requires a huge amount of space, ranging from 34,000 to 1,000,000 square feet. This is estimated to be equivalent to thousands of acres of land.
Unfortunately, a lack of legalization of Cannabis by the federal, state, and local governments has made it challenging to find properties with such large amounts of space. Also, due to its illegality, companies involved in the trade of Cannabis find it challenging to take a hard money loan to purchase property for cannabis use.
As a result, most have had to lease their spaces instead. This is where you, as a real estate investor, come in.
The Benefits of Being A Cannabis Real Estate Investor
Investing in cannabis-landed properties can be a highly lucrative venture. Cannabis growers, in particular, are known to be generous tenants, often paying above the standard market rate. This means that not only can you recoup your initial investments and generate profit quickly, but you can also take advantage of the industry while keeping your risk at a minimum.
One of the key benefits of investing in cannabis real estate is the security it offers. Even if the cannabis company you lease to runs into financial difficulties, you can always reclaim your properties. This flexibility provides a safety net, ensuring your investment remains secure and adaptable to market changes.
How To Buy Cannabis Real Estate
Investing in cannabis real estate involves more than just purchasing properties. Questions that often arise include, “Is this space suitable for a cannabis business?” “How accessible is Cannabis from here?” “What about the labor and overhead costs?” All these factors and more need to be considered if you want to buy a real estate that promises a lucrative ROI. Here is a step-by-step guide on how to navigate this process.
Understand The Legal Landscape of The Industry
Although Cannabis has gained widespread acceptance in recent years, it’s important to understand that it’s still a controlled substance in the United States and some other countries in the world.
This has birthed stern rules that have made it hard to acquire real estate for Cannabis. Some regions will even need you to show your residency before acquiring a property for the cannabis business.
With that in mind, it’s crucial to have an in-depth understanding of the local, federal, and state laws governing Cannabis in that target region. This knowledge will not only keep you on the right side of the law but also help you make informed decisions about your investment.
Define Your Goals
You must define your investment goals before acquiring a property. While some people might want to use their acquired property for the sole purpose of cannabis real estate, others might want to lease it out to cannabis growers for a while and rent it to traditional tenants. Also, you might need to define if you are looking for diversification, property accumulation, or long-term income generation.
Your goals will help you determine what kind of real estate you want to buy and prepare your investment strategy.
Understand Zoning Requirements
Zoning is important in commercial real estate, especially cannabis real estate. Every state that has approved the use and sale of Cannabis has rules and laws regarding where a cannabis business should be situated.
For example, these businesses shouldn’t be found around sensitive areas such as playgrounds, daycares, banks, and youth centers. Some state regulations also prevent such properties from being around places where vegetation, waterways, and animals may exist.
These laws evolve as Cannabis continues to gain acceptance, and it’s important to know their dynamics to ensure your property is safe now and in the future.
Select Your Location Type Carefully
Like any real estate investment, location is a top priority. For cannabis real estate, it’s even more critical as the location you are buying will influence other decisions you might make on that property in the near future.
Cannabis cultivation might be great in rural areas, but if you plan to be a distributor, you should look at properties in urban areas where you can reach more people.
Contact Property Owners
Once you’ve assessed the suitable cannabis-friendly real estateyou’d like to buy and conducted your due diligence, you can reach out to sellers offering what you want. They can be private sellers, real estate agents and developers, cannabis operators, and other investment groups. All this is dependent on you.
Conduct Property Analysis
The cannabis trade requires different types of properties to ensure the seamlessness of their operations. As a result, the suitability of the estate can vary based on the intended use.
For instance, if you are considering an indoor grower, you’ll need a more controlled environment, such as ventilation, lighting, and irrigation systems. If you want to build a retail store or a warehouse, you might also consider neighborhood compatibility.
Negotiate The Price And Close The Deal
Seek out prices of comparable properties within the area of your property to give you a strong foundation on how to negotiate. The size, zoning requirements, and the fact that you want to use it for a cannabis venture can affect the price.
Once you’ve secured the property, secure title insurance as well. Title insurance gives you final protection and security for any issue that arises in the future that wasn’t detected in the initial search. It ensures you have a marketable title to the property, reducing the risk of claims and disputes.
Risks For Cannabis Real Estate Investors
Investing in the cannabis industry requires extensive due diligence. Before buying a property, research it carefully and scrutinize every detail. Check the governmental regulations that impact the location, the local zoning, and other criteria for operating a cannabis business in that area.
Laws and regulations also evolve, so to maximize your return, you should ensure your knowledge is up to date.
Planning For Exit Strategies
Planning for exit strategies in cannabis real estate is vital to ensuring adaptability and flexibility in the ever-evolving market laws and regulations. Buying a property that will only be profitable for a Cannabis business means that if the business falls victim to federal enforcement laws, your investment can become useless.
Due to the industry’s uncertainty, you should consider several exit strategies, such as selling the property, having a lease buyout, or sale-leaseback, repurposing the property as well as other tax-efficient transfers.
Choosing the most effective exit strategy depends on market conditions, your goals, as well as the legal and tax implications.
Get Cannabis Real Estate Loan With Capital Max
Although the cannabis industry offers entrepreneurs and investors an enormous number of opportunities, it is very important to weigh the pros and cons and carefully consider the risks and rewards. From understanding zone regulations to managing risks and conducting due diligence, the multifaceted nature of this industry requires a meticulous approach.
Before making any investment, conduct research and seek advice from financial professionals like Capital Max. With the right strategy from us and a good understanding of various investment and financing options, you can participate in this rapidly growing industry. Our financing solutions are just what you need to take cannabis real estate loans and reap the benefits of a blossoming business.