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How to Select a Good Location for Each Type of Cannabis Business

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March 14, 2019

One of the most difficult parts of operating in the cannabis industry is locating real estate for your business.

As a new license applicant, it is critical that you have property locked down before submitting your application; however, zoning laws and fierce competition can make it difficult to find a compliant space.

When estimating your initial startup costs, keep in mind that rent is usually charged per square foot. The price per square foot will vary depending on the location and size of your facility, where the space is located in proximity to the business district, and your landlord’s markup.

Rent for cannabis businesses in less populated areas will be significantly cheaper, but there are additional costs to transporting and marketing your cannabis products to your customers.

Again, since green-zoned real estate is very limited, landlords charge a premium for space every other cannabis venture is willing to compete for.

Here are some guidelines as to what you can expect to pay:

  • Dispensaries located in a bigger city like Los Angeles can expect to pay between $7,000 and $15,000 a month in rent depending on their size.
  • Grow operations that are 25,000 square feet and located in a city that is a moderate distance from a metropolitan area should expect to pay between $15,000 to $20,000 per month in rent.
  • Manufacturing facilities need less square footage and are usually only permitted to operate in cities far away from dense populations. Therefore, expect to pay between $3,000 - $5,000.

Further, one aspect to consider when finding a location for your cannabis business is access to talent or human capital.

In larger cities (or close to them) you can typically find many potential candidates for business operations, but as you move to more rural areas, your ability to attract talent drops.

Not everyone wants to drive 20+ miles out to the desert to help you run your operation, but with additional pay or benefits, you can surely find a way to keep workers happy and engaged.

With that, here’s how to select a good location for your cannabis operation depending on your business vertical.

Cannabis Distributor Location

The biggest tip for distributors? Try to find space that cuts down on your travel time.

It’s worthwhile to pay a premium for a centrally located space where you can easily distribute your products.

Alternately, cannabis distributors can save money by doing “batch” distribution, i.e. transporting their product to one given region one region in each day.

For example, on Mondays you ship your product to the south; Tuesdays are for your western region; etc.

For vertically-integrated operators who are both distributors are retailers, minimize the distance between your production facility and your retail outlet as much as possible.

The time and effort it takes to bridge that gap can have significant impact on your bottom line. More time on the road increases costs and the possibility for more accidents.

Cannabis Cultivator Location

There are a lot of variables that factor into finding space for a cannabis grow operation.

First, consider the restrictions that your state has imposed on locating your premises away from public schools, parks, libraries, or other businesses where minors frequent. There is typically a 10,000 feet rule on how close you can be to these types of organizations.

Next, decide if your cannabis operation will be indoor or outdoor.

Consider factors like state regulations, precipitation and climate, soil quality, and open space.

For example, Washington permits outdoor cannabis production as long as there is an enclosing, sight-obscuring wall that is at least eight feet high. However, in Colorado, producers are prohibited from growing cannabis outside of an enclosed location with a roof structure.

If your state does permit outdoor cultivation, keep in mind that your operation will be susceptible to weather, pests, and drought. Cannabis is a fickle plant, and it may be better for your bottom line to open an indoor cultivation center.

The next biggest factor is space.

As a cultivator, your profit depends on your output, which will be determined by your footprint. Know how much cannabis you must sell to make a profit, and then convert that into ROI for your space.

How much space is enough?

Experts recommend that cultivators allow for at least a 5 gallon pot per cannabis plant, so at least 24" square per plant, plus additional room for walking paths, etc...

Because cannabis requires a lot of light, you will also need a greenhouse-specific HVAC system to keep your space ventilated and cool. That will add to your footprint and space needs. State and local regulations furthermore require your greenhouse to have access to the proper water supply and wastewater disposal facilities; a single cannabis plant can use as much as 22.7 liters of water per day.

Lastly, when looking at a cultivation operation, get some initial numbers on utility costs. If you're an indoor grower, reducing your cost/kWh by 30-50% will have amazing benefits for your bottom line!

And, as with distribution, retail, and manufacturing sites, take your site security very seriously.

Retail Cannabis Locations

Real estate for a cannabis dispensary is probably the most competitive of any of these business verticals.

Many cities are restricting the number of business permits available to dispensary operators; as a result, landlords can charge high rent and set very favorable lease terms.

Retailers who work with a landlord should approach your tenant agreement with the same thoroughness that you would a business permit application. Provide your business plan, financial projections, and anything else that makes it clear you aren’t a fly-by-night business. Demonstrate your security measures and how you will care for the property.

If you are waiting for your license application to be approved, our experts suggest negotiating for a contingency clause should your operation not be approved by the city.

Some landlords will accept a larger up-front deposit with an agreement that if your permit isn’t approved, they keep your cash. This gets you out of paying a long-term lease, which is costly up front but better in the long-run. Another good idea is to prevent the need for looking for real estate in the future by signing as long a lease as possible.

If your plan is to purchase property, make sure you read the city ordinances carefully to be sure you can operate your business in the industrial zone. Consider looking for a space where you can use the building for another use other than cannabis.

Customizing the space is a key way that retailers set themselves apart from the competition.

Industry experts found that the average cannabis dispensary brings in $974 per square foot, outpacing Whole Foods' average $930 in revenue per square foot. So, while finding a space can be labor-intensive, cannabis retail spaces that are well-designed tend to pay off in the long-run.

For more on using real estate to attract investors or for guidance on how to find the best real estate for your business, get in touch with our experts by clicking the button below.

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