{"id":190,"date":"2019-03-05T00:00:00","date_gmt":"2019-03-05T00:00:00","guid":{"rendered":"https:\/\/norrismclaughlin.com\/lg\/2019\/03\/05\/money-doesnt-grow-on-trees-financing-your-cannabis-real-estate\/"},"modified":"2019-03-05T00:00:00","modified_gmt":"2019-03-05T00:00:00","slug":"money-doesnt-grow-on-trees-financing-your-cannabis-real-estate","status":"publish","type":"post","link":"https:\/\/norrismclaughlin.com\/lg\/real-estate\/money-doesnt-grow-on-trees-financing-your-cannabis-real-estate\/","title":{"rendered":"Money Doesn\u2019t Grow on Trees: Financing Your Cannabis Real Estate"},"content":{"rendered":"

The cannabis industry is heavily dependent on real estate: cannabis needs to be grown, processed, and sold, and you can\u2019t do any of that without physical space.\u00a0 Marijuana remains a federally-controlled substance in the United States, creating a conflict with the laws of many U.S. states where medical and\/or adult recreational marijuana is legal.\u00a0 One of the initial hurdles for any cultivator, processor, or retailer of cannabis products is the ability to expand the cannabis-zoned real estate housing their operations.\u00a0 Owning or leasing real property is a crucial milestone in the expansion of any business operation, and the cannabis industry is no exception.\u00a0 Because regulated banks face the possibility of criminal prosecution for aiding and abetting a federal crime (not only possessing marijuana but also money laundering), owners of cannabis real estate may have difficulty obtaining institutional financing or even opening a bank account.\u00a0 In this post, we de-mystify the process of obtaining financing for your cannabis real estate by addressing where to get it, how to get it, and who you need on your team to get the best possible result.<\/p>\n

Where to Get It<\/strong><\/h4>\n

Even though many states have legalized the use of cannabis, institutional capital from banks that are subject to Financial Crimes Enforcement Network (\u201cFinCen\u201d) regulations is not readily available to finance cannabis real estate.\u00a0 The absence of institutional capital in this market has paved the way for a booming and ever-expanding industry of private lenders, state licensed banks, and local credit unions that are not subject to FinCen regulations and thus are ready, willing, and able to provide lending platforms specifically to meet the needs of cannabis real estate proprietors.\u00a0 These lenders provide an alternative to institutional sources of capital for cannabis businesses that are purchasing real estate in order to expand their business.\u00a0 However, because demand in this area vastly outweighs the supply of capital, cannabis real estate borrowers should beware of predatory lenders and negotiate as best they can to obtain competitive terms and rates for their loan. \u00a0While passage of the Agricultural Improvement Act of 2018 (the \u201cFarm Bill\u201d)<\/a> has moved the cannabis industry even closer to general societal acceptance, due to the as-yet-uncertain nature of the burgeoning cannabis landscape, reputable lenders will address the risk of cannabis real estate financing by having stringent requirements borrowers must meet in order to qualify. Borrowers should expect to pay hefty upfront origination and exit fees and underwriting fees to compensate lenders for the perceived institutional risk and additional reporting requirements imposed upon banks working with cannabis owners.<\/p>\n

How to Get It<\/strong><\/h4>\n

Cannabis real estate lending presents a distinct set of issues that must be overcome during the underwriting process.\u00a0 The main risk that a lender considers when determining whether to lend on cannabis real estate is whether the property can be purposed for a profitable non-cannabis use in the event future regulation renders the collateral real property prohibited for the cannabis-related use that supported the loan origination.\u00a0 Moreover, in order to lend on cannabis real estate, lenders will require property due diligence (title, zoning, survey) and extensive financial disclosure from the borrower. A few of the key factors that determine whether a borrower is successful in obtaining a real estate loan for a cannabis business are:<\/p>\n