Cannabis Real Estate – The Big 7
Times are changing, cannabis is on a slow but steady path towards federal recognition and availability nationwide. Back in 1996 California was the first state to legalize medical cannabis and fast forward to 2012 and Colorado became the first state to legalize a recreational market. Recreational cannabis is now legal in 16 states, including Washington D.C. and 36 states allow for medical grade cannabis. Odds are, within the next 5-10 years, cannabis will be federally recognized as a state governed substance, similar to alcohol. With this rapidly expanding market, cannabis real estate facilities are heavily sought after in all states which allow for cultivation, extraction, distribution and sales. Building facilities for cannabis specifically include dispensaries, grow and cultivation structures, as well as extraction centers. Each location type is governed by a plethora of unique and disparate state, county and city regulations. It’s a tangled web of multiple jurisdictions and agencies, with overlapping and in some cases competing oversight and to top it all off, there is no clearly defined roadmap for successful navigation. Oh… and it’s expensive! The more uses you intend for the building, the more the costs go up.
Over the course of the last several years, The Vivid Team (TVT) has established a cannabis EpiCenter with a unique multidisciplinary approach to cannabis research, cannabis-infused food and beverage development, ideation, commercialization, distribution and cultivation. Currently, our EpiCenter is located in a rented location in Denver, CO as the cannabis real estate market has been challenging to navigate. We are in the process of looking at our fourth building from which to base our rapidly expanding business. The complexities involved with locating a building are substantial and not for the weak of heart. There are literally hundreds of regulations and licensing issues which must be dealt with when sourcing a building for cannabis. The more operations that your business supports, the more difficult it can be to find a suitable location for purchase. On top of this – if your business is a Multi State Operator (MSO) – you’ll face even more challenges as every state has different regulations and laws which govern cannabis operations and potential business locations.
Jessica Cristadoro, the CEO of The Vivid Team gives us an idea of the challenging market TVT has faced here in Colorado, “Our search for a larger building has primarily been in Colorado. While we love Colorado for its central location and its robust cannabis market, we’ve found out the hard way that with an established market – this has translated to less available commercial buildings which can support our multidisciplinary business”. The operations manager at TVT, Chris Blackwood has been given the unenviable task of locating our permanent location. Chris has been in the weeds, both figuratively and literally, looking for just the right space.
The Big Seven
Medical and recreational cannabis facilities are governed by two different sets of statutes and rules, but the good news is, they are overseen by the same agency, The Colorado Marijuana Enforcement Division or (MED). The MED along with the City of and County of Denver and the State of Colorado have put into place the guidelines for what the cannabis building development plan looks like. For those who are contemplating securing their own building, we thought it would be helpful to outline the major components to completing a development plan – what we internally refer to as “The Big Seven”. While there are a host of other topics related to a businesses’ ability to sell, manufacture or store cannabis, for those interested in purchasing a building for use on the cannabis market, we felt articulating what the Big Seven is would be helpful for those in similar situations to TVT. The Big Seven refers to the different inspection phases and permitting that one will go through in order to certify a building for cannabis operations. Keep in mind that the order of the seven phases listed here isn’t exactly linear. The exact sequence of your own inspections will likely be different than how they are listed here, however if you’re in the Denver area and you’re wanting to purchase a building for cannabis, you most definitely will encounter each of these phases.
Find Your Location/Secure Use Permit
One of the most challenging steps is locating your future building. Here in the Denver area, you either need to purchase the building first and then have the city review the location to determine IF you can even have cannabis on site – or you need the current owner to submit a use permit application using their name. As we’ve found out, those aren’t really “great” options. Rather than purchase a building upfront, we’ve gone the route of securing use permits via the existing owner. Before you secure a use permit however – you first need to find the location, which is heavily controlled via a Distance Restriction. The restriction includes not being within 1,000 feet of any school, child care establishment, drug or alcohol treatment facilities as well as any city-owned recreation center or outdoor pool. As we’ve found out, this can be quite the challenge. What we have found works best in the search for potential building sites is to scour the city’s zoning map and then match your potential locations with a Google map of the area. Next, draw a 1,000 foot radius around the building and verify that no off-limits establishments exist within that radius and then finally, put boots on the ground and drive/walk the entire area to confirm your Google map work was correct. Pretty time consuming for sure.
Steffen Weck, the Chief Operating Office for TVT also mentions a key piece in searching for the right piece of real estate, “You also have to take into account there will be other businesses looking at the same small pool of available spaces. In a crowded market like Denver, there is a lot of competition – all looking at the same commercial spaces. It makes finding that “right place” that much more difficult”.
Zoning inspections can and likely will vary depending on the state where you are planning to purchase or have purchased property. The following pertains to what we’ve been through in the Denver area. In order to schedule this inspection, you’ll need a Temporary Certificate of Occupancy (TCO). In order to obtain this – you’ll need either a residential or commercial construction permit number. Be sure that you’ve got a zoning site plan and floor plan prepared ahead of time. In addition, you’ll want to be sure that your parking lot is paved, that you have handicap spaces which are clearly delineated as well as zoning approval for any roof-top units like A/C.
When the inspector comes out, here’s a sampling of what he’ll be looking for:
- Does the business match the floor plans?
- Are the Uses which are being conducted on site matching what was approved?
- If landscaping is present, does it match the approved site plan?
- Does outside storage match what has been approved?
- Do all signs, fencing and lighting match what has been approved?
Building Department Approval
This phase focuses on 4 areas:
Each of these categories has several components. For example, Construction approval looks at exit paths, proper signage, certification of occupancy, ADA requirements, construction adherence to engineering plans. Electrical reviews installation methods and practices, national electrical codes and again verifies that electrical follows on-site plans. Mechanical reviews ventilations and air systems, refrigeration systems and exhaust systems. Finally, Plumbing inspects gas lines, pressure tests existing systems, reviews bathrooms and more. The Building Department phase is detailed and extensive.
Fire Department Inspection
Here again, the fire inspection process is quite detailed and exhaustive. The inspection will include things like verifying all operational permits are clearly posted including hazardous processes like fumigation and extractions. They will also verify that the building has valid storage permits, proper locking mechanisms and all lights and safety systems are properly installed. The inspection will also ensure that paths of egress are clean, that flammable materials are properly stored and all exit lights are functioning.
Environmental Review and Approval
If you’re planning on having any cultivation activities on site, then your environmental review will include an inspection of things like, the number of grow lights, the types of lights used, your disposal methods, types of storage containers being used. You’ll also need to identify any types of pesticides that will be used. Be prepared for checks on your odor control systems and the waste water management system. Once you’ve passed the initial inspection, there will also be annual compliance inspections to ensure that the facility remains within the standards set for all the requirements placed on your building. The specific requirements for the environmental review can change based on the activities which will be done within the premise.
Health Department Inspection
The health department inspection is required for all new construction as well as remodeling. It is preferred that staff be on site to assist with answering any questions. The inspector will confirm a variety of measures have been addressed by the occupants. A quick sampling of what will be reviewed include:
- Hot water is available for hand washing
- Restrooms have been properly constructed
- Floors, walls and ceilings are easily cleanable
- There is a separate mop skink
- There is a properly working ventilation system
- Outer openings are secured against pests
- A plan is in place to prevent future violations
The inspector will ask numerous questions about your production processes, ingredient sources and your possible future expansion plans.
Excise and License
Before a cannabis business receives its license from the city, all required inspections must be completed. These range from following codes, ordinances, and regulations found in municipal codes, zoning codes, building codes, fire codes and building codes. The city will verify that the establishment’s layout matches the city’s approved plans, that there is a properly installed alarm system, that all entry and exit points are video monitored, that no product is visible from outside the building, that a safe-room exists and that a host of other regulations are met. If the facility will also be a dispensary from which consumers can purchase products – there are many additional regulations that must be adhered to as well. In most of the documentation – it’s at this point where you are advised to consult with both a private attorney and a licensed contractor.
Your Determination Will Pay Off
What we’ve shared with you certainly isn’t an exhaustive list of everything that you’ll be confronted with as you try to secure a building for cannabis sales or manufacturing, but we do hope that this article will give you a taste of what’s involved. It is an extremely complex process with a multitude of layers which overlap and intersect. You must be prepared for a lengthy process, patience and persistence are required. If you’re attempting to secure a location without the assistance of outside counsel, also be ready to learn as you go. Unfortunately there isn’t an all-encompassing book which covers every procedure for every state. The cannabis industry is still in its infancy and each state and city are still in the process of defining the procedural guidelines and milestones which companies must follow. As the saying goes, “It always seems impossible until it’s done”.