The cannabis real estate investment market has developed rapidly but is still in its infancy. Interest in commercial real estate investments is expected to grow – but much will depend on cities to clarify and iron out the regulatory process. There are plenty of investors waiting on the sidelines right now, and California cities could determine the long-term profitability of the potentially substantial niche investment market.
"We assume that interest will remain high and that the regulatory processes will normalize and become more predictable." Seth Weissman, a partner at Jeffer Mangels Butler & Mitchelltells GlobeSt.com. "Much depends on each city's comfort level with cannabis and the number of surgeries they allow in their city. Long-term growth will depend in part on the size of the cannabis consumer market and possible deregulation at the federal level."
Federal legalization could also play a role in the profitability of cannabis real estate as an asset class, especially in the short term. "If cannabis is allowed in all 50 states and the product can be distributed across state borders, it would have a huge impact on the market," says Weissman. “When regulations ease, there can be oversupply that lowers product prices and ultimately profits. This, in turn, could reduce demand for cannabis real estate and drive rents down to more general, market-driven levels. "
Weissman's advice to investors looking to enter the market: be smart. It's easy to believe that the market is a gold mine. "Don't be fooled, this is a quick buck and easy return," he says. “Understand all licensing terms in each jurisdiction; Do not rely on what the operators / tenants or their lawyers tell you. do your own homework; Invest in a lawyer who has done more than a handful of deals and ask them about the pitfalls. When someone comes up with a business plan that requires the owner to be involved in the approval process, understand that your name has been linked to cannabis, which is still illegal at the federal level. "
In addition to understanding the business and the market, this is an industry where tenant auditing is a must. "Make sure your tenants are ready to fully comply with all applicable laws and regulations," says Weissman. “Integrate these requirements into leasing documents and enforce them. Landlords who allow their tenants to knowingly violate applicable legal requirements run the risk of state and local officials taking enforcement action, including ceasing tenants' operations. There is even a risk of federal property deteriorating. "