Along with State Application requirements, local zoning and property regulations impose significant barriers to obtaining a Medical Cannabis Operating License.
As Entrepreneurs and Small Businesses continue to seek out opportunities in Medical Cannabis markets across the Country, one of the first requirements to operating in this Industry is the acquisition of a State license. However, before a business may begin the application process for acquiring a State license, they must meet the strict zoning and property regulations set by the State Licensing Agency.
Since regulations vary State by State, the laws which apply to the license holders typically involve the land where the site is located, the activities conducted on the site, the resulting products derived from the operations, and the distribution requirements that must be followed before the final product meets the consumer.
In this post, Mora Mota Group will outline the major factors to determining which site is proper for your business, exploring the differences to owning vs. leasing Real Estate in this Industry, and identifying the pivotal features of a site required for sustaining the long-term success of your Medical Cannabusiness.
The main component when deciding where to locate your new business is understanding the local municipality and the local zoning regulations, as these factors will determine where you may operate and what type of business license you may obtain. If you’re looking to cultivate Medical Cannabis, you’ll be likely to be zoned in Light/Heavy Industrial areas, while a Retail Dispensary needs to be located in Retail/Commercial zones, and depending on the municipality, Manufacturing facilities and Testing labs may be zoned in either Industrial or Commercial zones.
The challenge with identifying proper Real Estate to site your Medical Cannabis Facility are the restrictions where Medical Cannabusinesses may be zoned. State regulations allow for Cities the opportunity to authorize or deny State licensed Medical Cannabis facilities, as local approval is required to obtaining a State license.
Additionally, if these communities decide to adopt an ordinance to accept State licensed facilities, regulations may also restrict where licensees may be located. These restrictions typically include not being zoned within 1000’ of public parks, schools, child care centers and even restrict zoning near other Medical Cannabis Facilities or entities with liquor licences.
It is important to understand and recognize the needs of the community and, if possible, address them in a scheduled presentation of your business plan with the local government. This opportunity will allow you to display your awareness of the Industry, the issues involved and showcase the benefits of your business such as increased employment, decrease in crime rates, an overall improvement to the local community. Meeting with the municipality that you will be operating in can go a long way in gaining the acceptance of your business activities.
2. Size of the site
Choosing the license type and proper location of your business may be the starting points in researching your site, while future activities on the site and potential for expansion on the site should be explored. While business owners may be restricted to the tasks afforded to them by their initial license, as business grows and matures, the ability to scale operations will ultimately be determined by the size and space afforded by the site.
Questions to ask when selecting between multiple sites include:
Whether the site accommodates your current operational plans?;
Whether the site can be optimized for multiple licenses (cultivation + processing + retail) as the business grows?;
Whether the site will require significant capital investment in order to expand on the site?;
Whether there is adequate space to scale operations from one license to another (from Class A to Class C)?; and
Whether there are any regulations that may impede the ability to expand operations (site restricted to one license)?
Answering these questions will help identify the benefits and issues involved with a specific site, helping to align the understanding of the present and future needs of the business, and provide valuable information for owners and investors to make critical business decisions for the Facility.
3. Lease or Own
After identifying properly zoned and adequately sized land or Real Estate, the next factor the business should be considered is whether to lease or own the property. While the desired property may be listed strictly “For Sale” or “For Lease”, in the event there are no restrictions are imposed by the landlord/land owner, business owners will need to understand the advantages and disadvantages of either leasing or owning the site outright.
Leasing Real Estate
Entering into a lease agreement with a landlord can be a profitable situation for both parties: the future licensee secures the required site without the major upfront investment, allowing them to allocate expenses to other aspects of their operation, while the lessor has their property leased by a future State licensed entity.
While the benefits received by the business will allow them to obtain a licensee to operate, there are major considerations involved in a Medical Cannabis landlord/lease contract; considering the fact that Medical Cannabis is still considered a Schedule 1 Controlled Substance by the Federal Government, a 20-30% premium on lease rates may be imposed for the increased risk involved in the Industry.
Additionally, due to the uncertainty of the federal government, landlords and/or Real Estate brokers may be harder to persuade because of the nature of the business and the future of the Industry. Nevertheless, the quickest and most affordable way to securing a site for a State license will be leasing the Real Estate for your Medical Cannabis Facility.
Purchasing Real Estate
Having the ability to purchase the Real Estate or land for your Medical Cannabusiness allows for greater flexibility and the ability for the business to control its own destiny. While the initial capital investment required is significantly higher than leasing the site, there are noteworthy benefits to owning the property where your Medical Cannabis Facility is located.
While the licensed business grows within the Medical Cannabis market, the Entity will control an appreciating asset as the owners invest in building-out and developing the site. This provides the business with a formidable position in the long-term as it increases the owner’s ability for a stronger exit in selling the business in the future.
Similarly to the landlord in a Lease Agreement, there is still a higher risk held by the property owners due to the possibility of increased enforcement of Cannabis laws at the Federal Level or regressive State policies that put undue pressure on the ability to operate. Understanding this concern, business owners should weigh the potential advantages and disadvantages to owning the property to which your State operating license is tied.
4. Condition of the Site
Narrowing down the appropriate Real Estate for you Medical Cannabis Facility will require a visit to the site. If possible, schedule a meeting with the Landlord or Property Owner to ask specific questions regarding the history and condition of the site. While this may be their initial encounter with a potential Medical Cannabis lessee, there is the rare chance that the property owner previously leased to Medical Cannabis tenants, and may be more open and available to speak about the Industry and the potential business and activities conducted on the property.
While the property owner’s understanding of the business and Industry may be limited, it shall be the business owner’s responsibility to conduct a thorough analysis of the property. Be sure to examine and ask questions about the functional infrastructure of the site and/or building including the current electrical service, ceiling height, HVAC setup, as well as the building’s construction type and age.
This analysis will help to increase your awareness of any issues that need improving on the site, as well as any major concerns that will inhibit your ability to conduct ordinary business activities. It’s important to keep in mind that the better building and/or site, the less renovations or improvements that will be required in order to get the site up and running. While an exceptional site may be acquired, there will minimum required improvements to various onsite equipment that may include the irrigation infrastructure or security systems that will have to meet the regulations for licensed Medical Cannabis Facilities.
5. Development of the Site
In the process of acquiring a state license, businesses will go through various development stages including pre-license, build-out, and operational phases, and it is necessary to have a well-developed business plan for identifying these stages where capital investments will be required by the business.
During the pre-license phase, businesses will need to have the minimum capital for application fees, monthly rent for your proposed site, equipment and personnel expenses, including legal and consulting partners, and additional overhead cost in order to begin the State application process.
As the licensee receives approval from the State, the build-out process will impose direct capital cost on the business in order to bring the site up to operating standards. Once the business begins to operate, costs will accrue that include payroll, security, marketing, including compliance and legal fees, and any additional capital expenses.
Aside from the cost of bringing a Medical Cannabis business to market, licensees will have to anticipate and navigate any evolving regulations imposed by various governmental bodies. When a State Agency imposes stricter regulations on packaging, dosing requirements on products, or higher testing standards, will you have a contingency in place to anticipate these changes in regulations?
While numerous issues are involved when applying for a State Medical Cannabis license, the primary requirement for business owners is deciding where to locate your business. A thorough analyses of the size and condition of the site, as well as understanding of the required capital costs will have to be weighed before applying for an Operating License.
However, the primary question weighing heavily on many small business looking to enter this industry is, “Can I afford the cost to starting this business?” At Mora Mota Group, we are available to answer all questions and concerns from Entrepreneurs and Small Businesses that are passionate about learning how to enter this industry. Contact us today for a free consultation and how to begin the process of starting your own Medical Cannabis Company.