With the marijuana industry going from strength to strength, real estate developers stand to gain a lot from the heightened interest in securing prime and up-and-coming locations.
That said, the industry is one that is fraught with risks and uncertainties that could prove costly if cannabis real estate developers don’t do their homework.
Here are the three most common mistakes the marijuana real estate development industry makes, and the steps you need to take to mitigate against them.
1. Inadequate strategic planning
As marijuana legalization spreads across the US, the patchwork of rules and regulations governing the industry at state and local levels are becoming ever more complex and stringent, especially for cannabis retailers. Not only that, they’re liable to change more or less overnight.
Navigating this rapidly-evolving regulatory landscape is a major challenge, and unless you have comprehensive knowledge of the industry and are flexible enough to stay on top of the changes, then you won’t be able to plan adequately.
Hiring a real estate consultant with cannabis industry-specific expertise can help you understand the potential issues that may arise, and formulate a plan accordingly.
Aside from the fast-paced changes in the marijuana industry, you also have to take into consideration the limited timeframe to submit an application for a cannabis license. With so many other things to take into account, recruiting the services of a cannabis consultant with experience in crafting these applications can ease your load.
Another issue that often arises during the application process is the human element. For instance, those reviewing applications for Conditional Use Permits may interpret your responses in a particular way that results in a “Deficiency Notice.”
This is quite typical during the marijuana real estate development process, but if you aren’t prepared for it then it could set back your plans significantly.
To mitigate against this you need someone on your investment team with marijuana industry experience who can develop a comprehensive strategic plan concerning property suitability, licensing, and compliance, among other factors, before you make any major decisions.
2. Project management gaps
The next step in the investment process concerns the management of the project. All too often, marijuana real estate developers don’t staff their projects properly from the outset.
You need to have a committed project manager, ideally with marijuana industry experience, in place straight away to engage with state and local officials who may be seeking further information regarding your application or who may conduct an inspection with little or no notice.
A fully available project manager can stay on top of all the little issues before they become big and costly. Even something as small as submitting the wrong dimensions for a greenhouse can derail your application, meaning you potentially lose your license and have to start the process all over again.
To mitigate against this, you need an experienced project manager with cannabis real estate development expertise to take on the responsibility for all the small but significant details regarding your investment.
This third mistake typically follows from making the first two mistakes on this list. Without an adequate strategic plan and a committed project manager, the chances are that the costs of your marijuana real estate development project will quickly spiral out of control.
At the same time, having a solid plan and competent project manager isn’t enough in itself to make you don’t overspend.
Inflation is wreaking havoc with project budgets across multiple industries, and the cannabis space is no different. Rising material costs and backlogs are making it increasingly difficult to stay on budget.
In particular for cannabis real estate developers, rising utility costs and accessibility to sufficient utilities are a huge issue. Some real estate locations will require a wholesale utility upgrade before you can start operating as a cannabusiness, or even before you can start construction work on the property. This can send your budget into a tailspin.
To mitigate against surprise costs, we emphasize the need for a comprehensive plan and a dedicated project manager. Recruiting the requisite cannabis-industry expertise can be as much of a crucial investment for your cannabis real estate development project as the property itself.
Get it right, and you’ll reap the dividends. Fail to plan and recruit the real estate expertise you need, and your investment could easily fail given the pitfalls and risks the cannabis industry throws you way.