Opportunities and challenges for commercial properties producing cannabis
Aug 29th, 2019 | By FCT
It’s known as the green rush and several are making comparisons with the Wild West. On October 17, 2018, the Cannabis Act came into force making recreational cannabis legal in Canada. This Act is making waves in many sectors and real estate is no exception. But what opportunities and challenges does cannabis pose for commercial properties?
Real estate needs
Warehouses, greenhouses and retail space are all in demand in the wake of the booming cannabis market. This couldn’t have come at a better time when many retail landlords have seen revenue dip due to customers’ reliance of online shopping.
Yet, the retail aspect of cannabis is just one tiny slice of the pie. The industrial front is where the real action is. In fact, marijuana operators have locked up as much as 50 million square feet of space according to Steven Rector, a principal at real estate brokerage, Cresa Toronto.
Uncertainty in growth
The cannabis industry in Canada has received a lot of buzz and some explosive growth. Yet, the expected size of the retail marijuana market is not certain.
No one can predict how much of the illegal marijuana trade will transfer to licensed dispensaries. And no one knows just how long the trend will continue. It’s possible that the novelty will wear off leading to a slump in demand. This uncertainty presents risks for commercial real estate investors.
In 2019 and beyond, Canada can expect to see a wider variety of cannabis related products. From edibles and infused drinks to beauty and pet products. One US company has already announced a cannabis slushy.
High-end cannabis stores may soon dot malls across Canada where cannistas, (cannabis baristas), can help shoppers find the marijuana products that will suit their needs. But don’t expect a store in your local mall just yet, Ontario. Across the province, 77 of 414 municipalities have opted out of cannabis retail, mostly in rural areas. Some politicians are wary and want to wait and see what happens elsewhere before they get on board.
At the onset, there’ll be just 25 stores across the province, spread across these five regions: Toronto, Greater Toronto, Western Ontario, Eastern Ontario and Northern Ontario.
Cannabis related risks for commercial property investors
There are some inherent risks for property owners, tenants and lenders who are invested in the cannabis business. These commercial properties have a higher risk for theft and burglary.
Grow ops have a different risk factor. With their complex equipment, flammable plants and electrical apparatus, grow ops are at a substantial risk for fire.
Properties used for the production, distribution and sale of cannabis are also subject to the same title and off-title risks as properties used for other commercial purposes.
Title insurance is a tool that can be leveraged to reduce some of the risks involved, such as title fraud, survey issues, municipal agreement compliance issues, etc. When you’re ready to buy a commercial property, learn how title insurance can protect your investments.
At the end of the day, careful research of the industry and a clear vision of the risks will help commercial real estate investors find their right way forward in this industry.