Cannabis Facilities in Commercial Real Estate

Chicago, IL | November 28, 2018

Cannabis Facilities in Commercial Real Estate - David Graff

As more states legalize medical and recreational marijuana, the cannabis industry has become a rapidly emerging market in commercial real estate. Cultivation and processing facilities, as well as retail locations to distribute cannabis products, have popped up all over the country. High demand for such space has created a new opportunity for CRE professionals willing to work with clients in this booming, but complicated business.

Cannabis Facilities in Commercial Real Estate - David GraffDespite high demand and huge profits, working with clients in the pot industry comes with a unique set of considerations. MBRE’s Project Services team is currently managing construction of marijuana cultivation and processing facilities in five states. The first challenge when developing these types of facilities is finding a site location that accommodates the industry’s strict production requirements. According to David Graff, EVP & Managing Director of MBRE Project Services, each step of the production process is usually done on the same site, which means cannabis facilities typically require a lot of square footage.

These facilities must also be authorized by special-use permits within applicable zoning districts, further limiting site selection. Making sure that a facility can receive adequate and consistent power and water supply and support back-up generators – resources critical to successfully growing and cultivating hundreds to thousands of plants at once – is another important component when scouting locations. Project managers and owners must also plan where on site and how to dispose of wastewater without damaging the surrounding environment and abiding by all regulatory standards. 

Posing additional challenges, marijuana is still classified as an illicit substance under federal law, which means that cannabis products cannot be transported across state lines. With this limitation, production facilities are ideally located in close proximity to busy roads in order to be easily accessible to retailers, customers, and in many cases, sick patients. Marijuana’s street value also makes grow facilities vulnerable to break-ins, posing a potential threat not only to owners, but the surrounding community as well. Production sites should have the ability to be secured and monitored with measures such as extensive fencing, security systems, and security personnel. In some cases, project managers and owners must meet with local law enforcement to ensure the facility is properly guarded, easing tensions that may exist among nearby residents.

Whether or not to build from scratch or repurpose a vacant warehouse or industrial facility (of which there are many), is an additional consideration for project management teams and owners. For some projects, repurposing an established facility might be less expensive than building from the ground up. However, cannabis facility standards sometimes make ground up development the more cost-effective option for owners in cases where existing conditions would cost more to repurpose than a brand-new facility. Graff added that how quickly a space can be constructed or renovated is often as important as overall cost since owners want to reduce potential production loss as much as possible while their facility is being built. To keep up with clients’ product demand during facility construction, project management teams often must quickly establish temporary processing sites until the project is complete. 

Cannabis Facilities in Commercial Real Estate - David GraffBuilding out cannabis facilities’ interiors also takes special considerations from project managers and owners. MBRE’s Project Services team was selected largely for their extensive experience constructing life sciences facilities. Similar to cleanrooms found in bio-pharma labs, cannabis facilities require a highly controlled environment for optimal growth, cultivation, and processing of the plant. Part of this controlled environment is of course controlling and maintaining the space’s climate, as well as application of artificial light and daylight. Even a small difference in temperature, humidity, water quality and light levels can have a dramatic effect on how well marijuana grows and whether or not a batch meets quality standards. Producing consistent quality among cannabis strains is a top priority for growers, and maximizing cultivation space and flow is critical within the greenhouse, as well as maintaining separation of clean and dirty spaces. 

According to Graff, project managers and construction teams working or considering taking work with clients in the cannabis industry, viewing cultivation and processing sites as high-tech greenhouses with lab-type processing is essential to developing the optimal facility and meeting client expectations. As this new and growing market expands and becomes legal in more states (which is all but inevitable), CRE professionals must adapt and find innovative ways to address the unique challenges of constructing these facilities. 

Cannabis Facilities in Commercial Real Estate - David GraffHere in Illinois, the state government has only approved using marijuana for medical purposes, albeit in a more restrictive manner than other states. However, Illinois’ Governor-elect J.B. Pritzker plans to legalize recreational marijuana and expand medical use when his term starts, which is a huge win for the cannabis industry and its supporters – including CRE professionals looking to expand their own business with a new type of client.  

Learn more about MBRE's Project Services division here.

To read about David Graff's expertise & experience, click here.