(Editor’s note: This story is part of a recurring series of commentaries from professionals connected to the cannabis industry. Amy Steinfeld is co-chair of Brownstein Hyatt Farber Schreck’s marijuana and industrial hemp industry group. Jack Ucciferri is a law clerk for the firm.)
Beware of getting caught up in the race to secure a cannabis farm.
The risk of getting stuck with an impractical or unproductive site is high. But the cost of mitigating that risk is relatively low.
Below are five things to consider before buying or leasing a cannabis cultivation property.
Assembling a strong due diligence team – including a land-use planner and attorney – will help tease out site-specific factors and regulatory issues at the outset.
1. When it comes to water, don’t assume anything. Water supply, rights and regulations require an expert.
Water must be top of mind, but too often it’s an afterthought.
Property due diligence must consider the water supply and source because a property’s supply is often dependent on complex water rights, local ordinances, state regulations, politics and hydrology.
It’s important to consult a water lawyer and a hydrologist early in the process.
2. Understand your local ordinances – buffers, zoning and sensitive receptors.
Some states afford cities and counties the power to regulate, or even outlaw, cannabis operations.
Depending upon the jurisdiction, different types of cultivation (i.e., outdoor) may or may not be allowed on certain land-use zones.
Hiring a land-use planner before closing escrow is key.
It’s essential to understand local regulations, along with the zoning and what that means for the property and activity you have in mind.
Some jurisdictions allow vertical integration on agricultural properties. Others require that all cannabis be dried, processed and manufactured off-site.
Trucking wet plants to a manufacturing facility can dramatically change your business plan and bottom line by increasing transportation costs and being reliant on third-party manufacturers for production capacity.
Many jurisdictions have limited the number of permits issued or capped gross cultivation acreage by region.
Therefore, it’s important to know how many other cannabis farms are already in the queue or operational.
You should also examine the surrounding neighborhood.
For example, some jurisdictions require setbacks from sensitive receptors such as schools, residences and hospitals that could preclude planting or significantly reduce your planned acreage.
Proximity to other businesses or residences could also increase the likelihood of waking local opposition.
3. Know thy neighbors (and elected representatives).
It’s important to consider the political climate and potential project opponents.
Cannabis regulation is highly dynamic and poses the additional risk of getting your property approved or crop planted amid evolving regulations.
It’s imperative to recognize the current political landscape and where it’s headed.
For example, is an election on the horizon with the potential to shift support and add additional regulations that could render the project unsustainable?
Not in my backyard (NIMBY) sentiments can quickly go from dormant to overdrive.
This opposition can plague growers whether they are hoping to farm outdoors in a rural region or grow inside a greenhouse or warehouse in a developed area.
Unfortunately, a long history of anti-drug propaganda and fearmongering is not easily dispelled.
Local battles by neighborhood groups against cannabis growers can delay project approval and add significant cost and time to the permitting process.
Part of due diligence is vetting the neighbors, including understanding their existing and future land uses to anticipate conflicts.
This can be done by reviewing online media and determining whether other cannabis projects in the area have faced challenges – via an administrative appeal or in court.
4. Verify all seller representations sooner than later.
Even if you know and trust the seller, that doesn’t mean you should trust the seller’s understanding of the site or applicable laws.
Sellers are often well-intended but operate under false beliefs. Countless times we’ve come across sites that are falsely advertised as “100% entitled” or fully approved by state and local regulatory agencies to commence cannabis operations.
Buyers should carefully review any state or local authorizations (permits and licenses) and confirm that the project has all needed authorizations, that they are transferable and that no criminal activity is associated with the site.
If the property is not fully entitled, the buyer must appreciate the timeline for obtaining any remaining permits and site improvements that may be required before planting.
Often, security fencing and lighting, landscape screening and greenhouse improvements require a significant investment.
Without access to traditional loans, this can be a heavy lift.
5. Know the visible and invisible secrets – water and soil quality.
Beyond finding sufficient water and decent soil, the buyer must ensure neither the soil nor water supply will contaminate the crop.
Cannabis must be lab-tested for residual pesticides at levels so low that cultivators need to be wary of past site uses and associated contamination.
Other agricultural crops previously grown on the site are not subject to the same rules, and soils are often contaminated from years of pesticide application.
Regarding water quality, test not only the water supply’s pH and salt levels but also for other potential contaminants.
Cannabis plants are discerning, and water and soil remediation can be cost-prohibitive.
If there are neighboring farms, the buyer must determine what and where they are spraying and consider whether pesticide overspray can be avoided.
Dirty soil, water or regional pesticide use could render the crop unusable.
Ensuring long-term success for a cannabis farm
Cannabis is a high-value crop and an “essential industry” with a bright future.
But don’t let the industry’s bright future cloud your judgment on a particular project or parcel.
Find a team of consultants you trust, and empower them to help you analyze plan implementation, timing and budget.
A little bit of foresight and investment on the front end will go a long way toward ensuring the long-term success of your operation.
Amy Steinfeld is co-chair of Brownstein Hyatt Farber Schreck’s marijuana and industrial hemp industry group. She can be reached at email@example.com.
Jack Ucciferri is a law clerk for the firm. He can be reached at firstname.lastname@example.org.
The previous installment of this series is available here.
To be considered for publication as a guest columnist, please submit your request to email@example.com with the subject line “Guest Column.”