If you’ve been thinking about investing in the Cannabis real estate industry, you might be in for some significant return on investment. This industry has seen tremendous growth since the legalization of cannabis in many states across the U.S and the ever-increasing demand of CBD oils, Hemp balms, CBD tinctures, but specially due to cbd hemp flower effects.
According to projections made by the National Institute For Cannabis Investors, sales in the marijuana industry should grow from $10.8 billion to over $100 billion within the next five years. Therefore, it might be the right time to get some cannabis property deals. However, investors need to assess risk before moving forward with any plans.
Some of the principal factors to focus on are the trends currently shaping the cannabis real estate industry and how these will affect your entry or investments.
Why the Cannabis Real Estate Market?
If you’re an investor, there are many reasons to consider adding cannabis real estate assets to your investment portfolio. First and foremost, the main barrier to entry into the cannabis market is real estate. Therefore, any investor that has an eye on the cannabis market must acquire a local license, which is impossible without a piece of cannabis real estate.
Factors affecting the Cannabis Real Estate Market
Strict regulations
Relaxed legislation implies that more businesses, both online and offline, can market and sell cannabis products to individuals 21 years and above. However, the complexity of regulations can easily overwhelm new entrepreneurs, especially in the renting and buying of cannabis real estate.
This is because the laws governing the cannabis real estate industry vary from state to state. Even within a state, different cities can establish varying rules to regulate the market. For instance, three cities in Southern California show different tax percentages in addition to the 15% tax charged by the State of California.
Risks involved
Every investment comes with a level of risk. Usually, the higher the risk, the bigger the returns. Investing in the cannabis real estate markets is the same. However, because of how the cannabis landscape is still evolving, the risks for investors are also undergoing a lot of change.
The elements such as cannabis property operators, taxes, and conflicts between federal and state laws can drastically affect the future of trade in the cannabis market. Thus, investors will have to adopt strategic ways of entering the cannabis real estate market.
Strategic ways to enter the Cannabis Real Estate Market
There are two emerging trends for investing in the cannabis real estate market as outlined below:
Real Estate Investment Trust (REIT) Investments
As a real estate investor, you can choose to invest with a REIT that focuses on owning and running cannabis properties such as farms and processing facilities. An excellent example of a real estate investment trust is Innovative Industrial Properties (NYSE: IIPR).
IIPR is the first and presently the only real estate company that’s publicly traded, focusing on the cannabis market in the U.S. Early this year, the property investment firm owned 53 properties located in 15 different states.
The company acquires these properties from growers and later leases them under long-term triple-net contracts. Also, the company offers build-to-suit agreements for licensed growers, where IIPS develops cannabis facilities for them.
Through these agreements and contracts, the company gets multiple income streams to pay investor dividends and expand their list of properties, among many others. For example, in 2019, the company increased its portfolio to 51 properties in 15 states after being in business for only three years.
Direct Purchase or Facility Development
The direct approach of acquiring or developing cannabis real estate has higher stakes in terms of risks. However, as earlier mentioned, the profits would equally be higher if things work out. Here, you would have to make sure that the real estate you plan to invest in checks all the regulatory boxes, depending on your state and city.
Next, investors have to ensure that the grower leasing the property has all the necessary licenses and clearance to operate. Failure to meet any of the requirements could result in a ban. This would prevent the property from producing cannabis or any cannabis products. Hence, affecting profits, you would make from investments.
Conclusion
Though these points are valid and offer the utmost guidance for entering the cannabis real estate market, it’s still essential to conduct research or consult a financial advisor before making any final move. Therefore, the tips suggested above will work best when combined with your due diligence.
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