By: Amanda Bhikhari
Imagine running a successful business: inventory is growing and flourishing, staff is happy, operations are smooth, and all of a sudden – a notification arrives that a bank foreclosed on the property the business rents from the landlord, with no advance notice.
In the blink of an eye, the location is gone, the risk of losing of inventory is imminent, and cash flow is impacted during the transition to find another cultivation space. This type of situation can, and has, happened. But what could have been done differently before establishing operations?
Verify all local zoning codes
Knowing the local zoning codes and neighborhood restrictions are a key first step before initiating a search for property. The knowledge of how a company can grow and expand over time will also help in the formulation of a better business plan. Many neighborhoods with industrial warehouses in the South Florida market are going through the gentrification process, which indicates that there may be restrictions on location, as far as distance from any residential neighborhood.
List out operational requirements
One of the keys to business success will be knowing all of the requirements a facility should have and may need in order to operate. Many brokers and realtors are not experts in the medical marijuana business and do not understand the logistics or space requirements. For example, is there access to a water source to maintain your inventory? Is the lighting and exposure sufficient? Is the temperature of the room and the humidity of the area satisfactory? Is the energy voltage high enough?
It is very important to have a list of all these items before beginning a search to avoid backpedaling or having to retro fit a lease space.
Is buying an option?
Why consider buying? The key reason is – control. Control over the use of the space, lowered limitations on what can be done with the space, and the potential to generate income by renting the space in the event business slows down. The second reason – to avoid situations like the one mentioned in the beginning of this article.
If buying is not an option, make sure to work with a good broker/realtor and attorney who can negotiate the medical marijuana lease effectively. Here are a few key items to consider in negotiations:
- Situation 1 – The cannabis business is highly unpredictable in light of even the recent changes in its favor. What protections are in place if the industry regulations or business changes before the lease ends?
- Ensure the contract has an assignability clause – whereby a new business owner or entity is able to take over the lease without any penalty.
- Situation 2 – Business license is up for renewal and the application requires a copy of the medical marijuana lease.
- Ensure the contract clearly states what the use of the facility will be. Many landlords are hesitant to write ‘cannabis cultivation,’ (much less medical marijuana!) into their lease,and prefer to insert language such as “horticulture” or “medical services”. Many licensing applications require the lease is specific in its terms, so plan negotiate this into the lease, to avoid the risk of not being able to renew.
- Situation 3 – You are writing rent checks monthly to the landlord’s company, only to realize they are not the owner of the property.
- Due diligence is extremely important to ensure the landlord is the actual owner of the property, that they have good standing as a corporation, they are on the county tax roll and that they have a valid title on the property.
…and the list goes on.
These steps are a few of the foundational items to protect yourself as you look for real estate to establish your business and enter into a medical marijuana lease.