Cannabis real estate financing can seem daunting if you haven’t dealt with it before. However, conducting the right protocols for getting proper real estate financing can lessen the complexities.
Many new cannabis businesses are getting a license to secure their spot in the market from recreational to medical and have a process for how they get their financing for real estate.
This blog covers the intricacies of cannabis real estate financing so your business can establish a secure location.
Real Estate In The Cannabis Industry
Financing real estate for cannabis businesses remains one of the most challenging aspects of entering or expanding within the industry. While the market is evolving, access to traditional financial products is limited due to the federal status of cannabis in the U.S.
Why Cannabis Real Estate Financing Is Different
Cannabis is a Schedule 1 drug leading to many restrictions on the plant. This influences cannabis companies to think creatively about where to get proper loans or financing for their real estate. In conjunction, there are many restrictions on zoning of where a cannabis business can set up their shop, leading to limited options within their state and more challenges for cannabis real estate.
What Is Cannabis Real Estate Financing?
Cannabis real estate financing refers to the process of securing funds to purchase, lease, or develop properties specifically for cannabis-related businesses. This includes dispensaries, cultivation facilities, manufacturing plants, distribution centers, and other cannabis operations. Due to the unique legal and financial challenges posed by the cannabis industry, cannabis real estate financing operates differently from traditional real estate financing.
Key Challenges In Cannabis Real Estate Financing
Banking Limitations
Cannabis companies have limited options for banking services and financial loans for real estate. This poses a problem to many businesses trying to find financial income to secure their property to start selling cannabis products. Though there are cannabis-friendly banks that you can look into, but may have higher rates on loans.
There are also high interest rates from alternative lenders that can lead to higher expenses over time. If companies aren’t able to secure finance, they may look to other options like investors which can provide stability, but with other constraints.
Zoning And Land Use Regulations
Zoning and land use regulations are even more restrictive for state and local cannabis businesses, allowing less opportunity to find an ideal location.
High Competition And Costs
Another challenge is navigating the high competition of properties among other cannabis businesses leading to limited selections. In conjunction, there are higher costs for pursuing a cannabis-friendly property that can leave a business paying more than normal.
Regulatory Uncertainty
There’s also regulatory uncertainty for cannabis owners as the laws are consistently changing for state and federal. This can affect property use or financing terms that businesses may have agreed upon.
Financing Options For Cannabis Real Estate
Though it may look bleak to find financing for your cannabis real estate, there are options you can explore.
Private Lenders
There are several private lenders who cater to providing cannabis businesses financing. These can be private equity firms and real estate investors, so be sure to watch out for these types of lenders.
Hard Money Loans
Hard money loans offer short-term and high-interest loans for those with immediate real estate needs.
Cannabis Real Estate Investment Trusts (REITs)
REITs are a source of funding for cannabis businesses that can give you the property you need. These can include Innovative Industrial Properties (IIPR), NewLake Capital Partners (NLCP), AFC Gamma (AFCG), and Power REIT (PW).
Seller Financing
These are arrangements where the property owner finances the purchase which offers benefits to cannabis companies. But it’s not without risks, as with any financial gain.
Leasing Vs. Purchasing
You can also lease and purchase a property if you have the initial capital to do so. Leasing is preferable to those who can cover the monthly costs rather than buying outright.
These are some of the financing you can get for real estate that can positively benefit your business goals. It’s also important to look through all the pros and cons of each to see which one would suit you best.
Preparing For Cannabis Real Estate Financing
Now you understand how to get real estate financing, you can start preparing to access proper financing. If you don’t want to go into it yourself, we recommend you work with cannabis accountants.
At Green Space Accounting, we help you prepare by reviewing your financial status and providing guidance on the best real estate financing for your needs.
We also help with all your accounting and bookkeeping needs, so feel free to reach out to us one-on-one.
Contact us today!
