Cannabis Cultivators Pay Top Dollar To Lease Industrial Properties

Investors looking to get the most out of their industrial properties might consider leasing them to cannabis cultivation operations.

Industrial has been a bright spot in commercial real estate since the onset of the global COVID-19 pandemic when people increasingly turned to online shopping for everything from groceries to home office furniture. 

But if they can meet the complex requirements of the cannabis cultivation industry, industrial property owners and investors could generate greater returns by leasing to growers in the burgeoning market.

With the newly opened adult-use markets, combined U.S. medical and recreational cannabis sales could reach $33.6 billion by the end of 2023, according to an MJBiz Factbook analysis. Cannabis cultivators are vying for space in newly opened markets, where competition within the industry and from mainstream companies is stiff.

The No. 1 feature an industrial building must provide to attract cannabis cultivators is power, said Matte Namer, founder and CEO of Cannabeta Realty Group, a real estate brokerage focused on the cannabis industry in New York, New Jersey, Connecticut and Maryland. Cannabis cultivation facilities require a lot of power, which is costly and time-consuming to add to a building that doesn’t have an adequate supply.

“Most existing industrial buildings don’t have the power that is required for a cannabis cultivation facility,” Namer said. “Cultivators are usually willing to pay a premium for a building that has the power structure in place.”

Other factors that are important to cultivation businesses are insulation to ensure a climate-controlled environment and ceiling heights — if they’re high enough, it may be possible to grow an extra layer of plants.  

Most industrial tenants don’t need much of what cannabis cultivators required, but by the same token, marijuana growers don’t need many of the features logistics companies require. For example, cannabis cultivators don’t need loading docks because their goods are transported in smaller trucks.

They also generally don’t need to be near interstates because their deliveries are local — a fact that often makes them more attractive to municipalities than logistics companies because it doesn’t increase traffic from semitrucks. 

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“Municipalities often prefer cannabis over logistics — some are excited about the tax revenue and to a lesser extent jobs,” Namer said.

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