Prospective marijuana growers who lack the money to bankroll their own sites increasingly are turning to companies that specialize in leasing land to cannabis cultivators.
This alone has created a mini boom in the emerging real estate leasing business – and given cultivators a new avenue for launching their companies. Executives with real estate firms that lease to marijuana growers say the market for their services is large and growing, fueled by increased demand for cannabis and the need for land to grow the plant.
Investors, meanwhile, are pouring millions of dollars into these businesses. Looking ahead, the expected growth of these companies is expected to transform cannabis cultivation, with mega grow sites becoming more the norm, some experts said.
“Cannabis is going to be a $20 billion industry in 2020. Someone is going to have to build millions of square feet of infrastructure, which is going to take billions of dollars to produce the product that will generate that forecasted revenue,” says one investor. “As of now, the infrastructure isn’t there to meet those numbers.”
The land leasing business has certain attractions, apart from being a part of the overall growing marijuana industry. Leasing company executives don’t actually touch the plant – so they don’t carry any personal risk – and there is relatively limited competition because of the specialized skill set and the large amount of money needed to bankroll such an operation.“In this industry, there’s plenty of room for people who have the skills that we bring to the table, and an opportunity for everybody to be successful because the growth within the industry is quite high,” said a CEO, of a real estate company that leases property to indoor cannabis growers.
Is there a Better Cultivation Model? The exploding need for grow property is expected to drive what cultivation facilities look like in the near future. Smaller facilities, as in 10,000 or 20,000 square feet, will be supplanted by gigantic sites with hundreds of thousands – even millions – of square feet of space, some experts predicted.
Is there a Better Cultivation Model? The exploding need for grow property is expected to drive what cultivation facilities look like in the near future. Smaller facilities, as in 10,000 or 20,000 square feet, will be supplanted by gigantic sites with hundreds of thousands – even millions – of square feet of space, some experts predicted.
The “path forward” will look more like today’s commercial agricultural produce cultivation operations. “Look at produce, grown in master-planned greenhouses with built-in efficiencies. Those efficiencies haven’t been brought to the cannabis industry. We are bringing them in,” says a real estate CEO.
The numbers are alluring, and renting property to money-making cannabis cultivators seems like a simple enough business model to manage, given that business owners aren’t technically touching the plant.
Because few companies currently are in this emerging real estate business, there’s plenty of room for competition. And those companies that are getting into it account for only a miniscule amount of cannabis-related property in this country, observers said.
“In all forms of real estate, there are hundreds of competitors, and there seems to be enough business to go around,” says the CEO.
Special Skills? So why aren’t more players jumping into this business sector?
It’s tough to launch such a business. Renting commercial-scale grow space requires significant investment capital and a specialized skillset that few people possess.
Companies don’t simply buy land, lease it and leave tenants to fend themselves. Rather, they invest significant capital – it takes at least the low seven figures – to outfit a site for cultivation, including climate control equipment, power, drainage, and even testing equipment.
Moreover, not everyone thinks leasing is the best way to go.
“There are some potential quagmires there,” says another real estate CEO, who owns two cultivation properties. By quagmires, he meant local political foot-dragging that can make it hard to get all the permits required to start such a grow site.
“It’s not nearly as lucrative as growing itself,” he says, although he’s not done with leasing.
“As the industry matures, there will be people who need this.”
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