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Deploying Real Estate Assets: Land Acquisition - Zoning & Use

Deploying real estate assets is always a challenge; every deal has its own nuance. However, on-trend with the industry in general, the cannabis industry brings with it varied and unique challenges related to real estate. This is the first in a series of blog posts dealing with the topic of deploying real estate assets in the cannabis industry.

Acquiring land to be used for a cannabis related business requires careful consideration. As with any real estate deal, zoning, use, and access to utilities are paramount to a successful real estate development project. In the case of cannabis, those three items can be even more challenging.

The zone of a parcel of land determines what kinds of improvements can be constructed on that land. Typical zones could be residential, commercial, light industrial, etc. Some municipalities even have overlay districts which modify or enhance the particular zoning for that site. As an example, the city of Rochester, NY has an “office overlay” zone which lays on top of historical residential zones in the downtown area. This overlay was put in place to allow for the repurposing of historical homes as office space without needing further town approvals.

The zoning bylaws of the municipality will define what each zone means, and what rules govern those zones. In most cases, there are provisions which allow owners of land within zones to either change the zoning, or request approval of a variance. In either case, the municipality’s bylaws will define the procedure for those changes or variances.

In relation to the cannabis industry specifically, the issue of zoning is amplified. Meeting the highly regulated operational requirements within the confines of municipal zoning is complicated. For example, some municipalities have specific cannabis zones. Others do not. Some municipalities view cannabis indoor cultivation as agriculture, while others view it as manufacturing. Some municipalities are silent as to how they view cannabis operations, and leave it up to zoning boards or other town boards to approve or deny requests based on their individual judgment.

Another key item to consider is the use of the property. Every municipality will define within its zoning bylaws what the permitted uses are for each zone. Part of those defined uses will be whether any permitting might be required in order to develop the property for a specific use. These uses can be broad such as “light industrial manufacturing”, or could be very narrow such as “cannabis retail”.

Depending on the use, the procedures for project approval may vary. For example, developing raw land in a commercial zone may stipulate that a building permit is required. However, for that zone, if you want to put cannabis indoor cultivation inside that building, the municipality may require a special use permit. Depending on the municipality’s zoning bylaws, this special use permit application process may take place before, or concurrently with a building permit application. Thus, in order to plan for working capital and financing timelines, it would be important to understand the timelines for these permit applications.

Depending on the location of your proposed project, there may be other standards which impact your use of the property. Many areas designated by municipalities as “industrial parks'' have their own set of standards, restrictions, and requirements beyond those of the zoning bylaws.

There could be restrictions on water or sewer use. In some cases, these restrictions can be waived by the town, but some may not. Cannabis cultivation and manufacturing businesses tend to demand higher levels of water and sewer use than similar businesses due to regulatory restrictions regarding security and disposal of plant materials. Thus, it is not uncommon for cannabis businesses to exceed industrial standards surrounding utilities. It is important to understand how much water and wastewater you anticipate consuming and creating, respectively, in order to assess whether you can meet the industrial standards. This should be determined prior to acquiring property.

Lastly, you must also determine if there is sufficient access to water, sewer, and electricity on your site. This requires an assessment of the projected use of these utilities. More likely than not, having access to municipal water, sewer, and phase 3 electricity will be imperative in an indoor cultivation operation. If there is no municipal water access, understanding the recharge rate of wells would help with water use, but may require pre-treatment before use in a cultivation setting. If there is no access to sewer, it is possible that the wastewater may require pre-treatment to remove nutrients and other contaminants prior to introduction into groundwater - this is very costly. If there is no immediate site access to electricity, it may mean that you would need to run electricity to the site which is also very costly.

Whether you are a lessor to a cannabis company, or the company itself, you will still need to contend with all of these issues. It is a plan for how to drive the process rather than be rocked by it that will mitigate these risks. Here are some suggestions:

  • Get to know the members of the appropriate boards in the municipality where you are seeking to establish your business.

  • Attend public meetings of the boards to observe their dynamics

  • Keep an eye on election cycles - who’s up for elections and where do they stand on cannabis?

  • Familiarize yourself with the procedures for applications and approvals relevant to your project in that municipality.

  • Consider whether getting a legal opinion from a land use attorney might be beneficial prior to acquisition. This might be the case if the zoning bylaws are at all unclear.

  • Do enough engineering on your proposed project to determine utility use prior to identifying a site so that you have the ability to assess whether it is practical for your defined use.

Also - keep in mind that you will run into one million roadblocks on the path to finalizing the acquisition of a property for cannabis use. You are not alone; slow and steady is the name of the cannabis real estate game.


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