September 25, 2016
A Safe Investment in a Risky Industry

In the risky, unstable marijuana industry, a lot of things can go wrong. Your bank could decide that they would prefer you take your account to another institution. Your neighbor could pursue a Racketeer Influenced and Corrupt Organizations Act suit. You could lose your license — and your business — with even a minor offense.

In this highly uncertain industry, marijuana entrepreneurs have found at least one safe and secure bet: buying real estate.

With so many regulations and other obstacles standing in the way of success, owning property is one of the few things a pot business owner can control. The conditions in which they operate make them acutely aware of the important role real estate plays in the long-term success of a business.

Aside from being one of the most time-tested investments, owning property is also a safe way to store money. In the world of marijuana dispensaries, real estate ownership can even act as a flack jacket against a common nightmare scenario.

Since 2013, a high percentage of cannabis entrepreneurs have fallen victim to skyrocketing warehouse rents. Piled on top of the initial costs involved in converting the space into something suitable for a plant growing operation, few have the financial strength to keep up.

Being the property owner is valuable protection against the threat of rapidly increasing rent costs that can be financially crippling.

The path to building ownership more open for legal pot growers than many other buyers in the market. Typically, they are looking for “light industrial” zoned spaces that have been unused and empty for years. While demand for these properties is rising quickly in some markets where cannabis dispensaries are proliferating, plenty of good bargains are still available.

In hot marijuana markets like Denver, property investing has become a lucrative side investment for pot business owners. It’s becoming common to hear about entrepreneurs buying warehouses for their grow operation, only to resell a few years later because the value of the light industrial property has tripled or even quadrupled.

Today, owning the property or properties you grow and operate in has become an essential part of the business model for dispensaries. In an industry where businesses still have issues maintaining bank accounts, real estate ownership itself almost acts as a form of banking. All of the compliance work that traditional banks need to follow when dealing with marijuana companies can lead very high fees. Some pot entrepreneurs pay as much as $2,500 per month to maintain their account.

The unstable nature of the business makes banks less willing to loan money to pot companies. Buying a property with cash profits is the most popular way for businesses to run around the trouble with banks.

In this new industry, they’re learning one of the oldest lessons in investing: If you want a safe bet with your money, there’s nothing better than real estate.