New York Real Estate and Marijuana-Part 2
Therefore, once the Cannabis Control Board (CCB) issues a license application, you are interested in applying for an adult cannabis license. One of the first decisions applicants need to make is where they intend to operate.As we discussed earlier about the Marijuana Regulatory and Taxation Act (MRTA) and part 1 In this series, applicants need to prove that they own or have (through a lease or management agreement) the physical location where the applicant will operate in their initial 2-year license.
After determining the target license type (this should be the first step for any adult marijuana applicant), applicants need to pay attention to many real estate-related issues, whether they are buying or renting a property. These are some considerations and practical steps that applicants should start to consider/take now.
Location, location, location
After deciding on the type of license, applicants really need to consider where they want to operate. Given MRTA’s local opt-out clause, location selection is particularly relevant for retail pharmacies and on-site consumer applicants. Similarly, applicants on the production side (planting and processing) may want to avoid paying attention to real estate in New York City, where the cost of real estate is usually higher and it is difficult to obtain important industrial floor space.
Real estate costs are one of the highest operating expenses for companies. Incorporating local real estate costs into the business plan is essential to effectively prepare for an adult use permit. Once the applicant has determined the location, the important thing is…
Start talking with the agent
There are many real estate agents, and each agent has a different specialty in a different geographic area. A good broker will establish existing relationships with retail and industrial owners and have an in-depth understanding of the local real estate market. Prices per square foot, tenant improvement allowances, and delayed rents are just some of the issues that brokers are familiar with at first. Given that applicants who choose to lease real estate will face the possibility of signing a lease agreement and not being able to obtain a license, delayed rent and potential opt-out clauses are crucial.
Defend the local government
Regardless of whether the target location is in a municipality that supports MRTA, it is important that the local government is satisfied with your plan. The MRTA actually requires applicants for retail and on-site consumption permits to notify the local municipality (New York City’s Application Community Committee) of their intention to apply.
For all types of permits, obtaining support from the local government may help simplify the application process and actual operations. We hope that written support from the local community will benefit the application. Given that no matter how the government approves the regulation and enforcement, it will make business difficult, so general public support is equally important.
In all license types, it is an obvious requirement to confirm that the determined real estate is classified as the applicant’s intended use. For applicants who intend to purchase or lease a developed property, the permitted use of the property should be easy to determine. But for those applicants who choose to buy or lease land and construct and operate buildings, it is a necessary step to confirm the local zoning rules of the property, including height and lot use restrictions, before signing any real estate contract.
Identify any loan issues
Federally insured banks are currently unable to provide loans to cannabis companies. In Part 1 of this series, we introduced typical clauses that ban cannabis business. For applicants who choose to purchase real estate, this issue will soon be resolved: if the lender has federal insurance, the discussion may end once the final use of the property is revealed.
For applicants who choose to lease, the problem is slightly more complicated. Most landlords won’t risk triggering a default based on their loan agreement, but for those who do, the lender’s foreclosure of the leased property and removal of the marijuana tenant can have a costly impact, especially if the tenant Forced to move out of the house after the start of the operation.
Applicants should review or have their lawyer review all publicly submitted loan documents to understand the deeds that restrict leases to cannabis companies. It makes sense to require the landlord to declare and guarantee in the lease that they have the right to rent to cannabis companies.
Design and construction plan
Once the applicant has purchased or leased the real estate, it is very important to actually construct the facility. Designing and constructing any site is a time-consuming process. This is especially true for industrial facilities (that is, growers and processors) and New York City, where the design approval process itself is very long, and construction may stop for various reasons.
Talking to the architect as soon as possible is essential to stay on track. For planting and processing applicants, considering that MRTA uses energy efficiency as a permit evaluation standard, it is also meaningful to talk to energy consultants, especially consultants who specialize in alternative energy.
In New York, the Labor Law (applicable to construction) and the House Liability Law (i.e. slip and fall accidents) create significant potential liability in the real estate sector. It is important that the applicant talk to a reputable insurance broker. Is good insurance expensive? Yes, but cheaper than legal fees and potential liability in slip and fall cases.
In short, any adult marijuana applicant needs to pay attention to many real estate issues when planning to apply for a permit. Some of these issues will evolve as the CCB issues regulations, and we will cover any and all changes here.