New York Real Estate and Cannabis – Part 2

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New York Real Estate and Cannabis – Part 2

So you are interested in applying for an adult cannabis license once the Cannabis Control Board (CCB) has issued the license application. One of the first decisions an applicant must make is where to act. As we mentioned in our previous contributions to the Marihuana Regulation and Taxation Act (MRTA) and in Part 1 of this series, applicants must demonstrate that they either own the physical location in contract or are under contract (via lease or management agreement). which the applicant will operate throughout the applicant’s initial 2-year license.

After identifying the desired license type (which should be the first step for any adult cannabis use applicant), there are many real estate-related questions an applicant must consider whether they are buying or renting real estate. These are some considerations and practical steps that applicants should ponder right now.

Location, location, location

After deciding on a license type, applicants really need to consider where they want to operate. Given the local opt-out provision of the MRTA, the choice of location is particularly relevant for applicants for retail pharmacies and on-site consumption. Similarly, on the production (cultivation and processing) side, applicants should likely avoid focusing on real estate in New York City, where real estate costs are typically higher and significant industrial space is harder to come by.

Real estate costs are one of the highest operating expenses for a company. Incorporating local real estate costs into a business plan is critical to effectively preparing to apply for a license for adult use. Once an applicant has identified the location, it is important to …

Talk to brokers

There are many real estate agents out there, each with a different specialization in a different geographic area. A good realtor will have established relationships with retail and industrial rental companies and a good understanding of the local real estate market. The square meter price, allowances for tenant improvements, and a late rental start are just a few of the issues brokers are familiar with. Rental delays and potential opt-out provisions are critical as applicants who choose to rent property have the option of entering into a rental agreement rather than obtaining a license.

Local government attorney

Whether or not the destination is in a community that supports the MRTA, it is important that the local government familiarize themselves with your plans. The MRTA requires retail and on-site consumption license applicants to notify the local community (the applying New York City council office) of any intention to apply.

For all license types, the support of the local government will likely make the application process and actual operations easier. We expect written support from the local community to benefit an application. General public support is equally important, as government enforcement can make business difficult regardless of government approval.

Confirm the zoning

With all license types, confirmation that the identified property is identified for the applicant’s intended use is an obvious requirement. Applicants who want to buy or lease built-up land should be able to easily identify the permitted uses of the land. But for those applicants looking to buy or lease land and erect a building to operate, confirming local zoning rules for the property, including height and land use restrictions, is a necessary step before entering into a real estate contract.

Identify any credit problems

Federally insured banks are currently unable to provide loans to cannabis companies. In Part 1 of this series, we covered what a typical clause that prohibits cannabis operations looks like. This problem will quickly resolve itself for applicants who decide to buy a property: if the lender has state insurance, discussions will likely end once the end use of the property is known.

Things are a little more complicated for applicants who choose to lease. Most landlords would not risk defaulting on their loan agreements, but for those who do, foreclosure on the rental property and removal of the cannabis tenant can have costly consequences, especially if the tenant is forced to vacate the premises after it begins to vacate operations.

Applicants should review or have their attorney review all publicly filed loan documents for agreements restricting leasing to cannabis companies. It also makes sense to require the landlord to represent in the lease and ensure that they are authorized to rent to a cannabis company.

Design and construction plans

Once an applicant has bought or rented a property, the actual construction of the facility is quite important. Designing and building space is a time consuming process. This is twofold in industrial facilities (i.e. cultivators and processors) and in New York City, where the design approval process itself is lengthy and construction can be halted for a variety of reasons.

It is important to speak to an architect as soon as possible to stay on track. For cultivation and processing applicants, it also makes sense to speak to an energy advisor, especially one who specializes in alternative energies, since the MRTA includes energy efficiency as an evaluation criterion for approval.

insurance

In New York, the labor law (which applies to construction) and building liability laws (i.e. slips and falls) create significant liability potential in the real estate context. It is important for applicants to speak to a reputable insurance broker. Is Good Insurance Expensive? Yes, but less than the legal fees and the potential liability for a slip-and-fall case.

In summary, there are many real estate issues that any adult cannabis use applicant must consider when planning to apply for a license. Some of these issues will develop as the CCB issues regulations and we will be here to cover any changes.