Washington + Cannabis + Landlords

[Eric Belgau]

I'm not sure if this is of any interest to the community here, but from where I sit it's getting to be downright fascinating.

With recreational cannabis legal in WA and CO - and momentum toward legalization elsewhere - we can assume there will be more and more people wanting to rent space for sanctioned, licensed growing operations.

My experience and knowledge is specific to WA and is focused on the insurance aspect. (It would be interesting to hear commentary from CO, as well as other professional perspectives.) That narrow view notwithstanding, there are a few things I'm seeing that I feel commercial landlords should be aware of.

First, leasing to a cannabis-related company will almost certainly impact your Lessor's Risk policy on a commercial property. Our preferred markets don't want to insure buildings that have cannabis-related businesses in them, and that can mean a sometimes significant rate change. That's worth investigating before agreeing to lease terms with a tenant.

Second, although the CO market seems to be going great guns, here in WA regulatory factors are creating significant obstacles for aspiring cannabis entrepreneurs. A significant number of the people I've worked with have had great plans, but they have not had sufficient capital to realistically realize them. I would encourage commercial landlords to take a good hard look at a prospective tenant's capitalization and business plan before taking on the risk of leasing space.

Third, the costs of doing business in the cannabis industry are crazy. It's not just that they're high. It's that they're hard to predict. In the insurance sphere, we're seeing huge spreads (by two and three multiples of the premium) on the quotes rated from a single application. When you lease to a cannabis business, you should be prepared to inherit some of that craziness.

Fourth, because costs are high a significant portion of the growers I've spoken with want to carry the absolute minimum coverage required by law in order to keep their costs down. That means that commercial property owners should take a closer than normal look at their tenants' coverage to make sure there aren't any gaps that could present a problem in the event of a loss.

On the other hand, these issues, as well as the regulations, do create a shortage of space, which can mean premium rents.

Food for thought!