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One of the most exciting aspects of starting your own business is finding the right location. There’s something special about using the exact space to create a vision for your new cannabis business. Yet, finding the right location isn’t just about finding a great space. Like so many aspects of cannabis businesses, there are some complex nuances to getting a host community agreement.

As we continue our series for cannabis business owners in the licensing process, today’s post is all about understanding host community agreements and how to choose a location.  

 

Location, Location, Location

Cannabis-related companies tend to require additional documentation than businesses in other industries, and location is no exception. Certain municipalities, and even neighborhoods, may have different opportunities and requirements for cannabis businesses, including additional licensing or permits. For example, if you want to open a cannabis establishment in Boston, you must go through extra steps than in other cities in Massachusetts. 

Most regulatory bodies require you to sign some kind of a Host Community Agreement (HCA). The primary purpose of HCAs is to provide a mutually beneficial relationship with the community. You may also be required to host a community outreach event in the municipality where you plan to operate to discuss how your business will affect the community.

HCAs may include guidelines, stipulations, and conditions between the municipality and your company, including the type of security detail you’ll have, any educational or community outreach, and other points of consideration. 

That’s only one aspect of your location.

You’ll also want to consider proximity to major highways, ease of access, foot traffic, nearby competitors, and the overall vibe of the community. Like other retail locations, a high-end business might not thrive in a blue-collar neighborhood and vice versa.

Signing—and Understanding—Your Lease

In the last article, we talked about the importance of a good real estate professional. Many of the lease agreements that we’ve seen have provisions for rent escalations over time. Usually, they start out with a pre-licensing cost so that it gives you time to do your build-out and get your application and your site completely approved. And then once you become operational, or in the 2nd year, the rent starts to increase. 

So doing some proper prior planning around whether or not your business is actually going to support these lease payments ahead of time matters. More on that in the next video.

Your Location and Host Community Play a Huge Role in Success

Location matters. We’ve always known this. When it comes to your cannabis business, being proactive here will help you go through the licensing process more quickly and efficiently so you can start turning profitable sooner.. 

Ready for financial support in your cannabis business? Contact Accounting for Green today to find out how to get started.

To catch the other videos in this series, see the links below.

Conversation #1 Cannabis Start-Up? What You Need to Know About Pre-Licensing Expenses

Conversation #2 Documenting Funding for Your Cannabis Business

Conversation #3 Know Your Cannabis Biz Pros 

Conversation #5 Understanding Forecasts in the Cannabis Economy 

 

Prefer to read instead of watch the video?

Here’s a transcript of the video:

So locations, most states, they’re all set up a little bit differently, but most states require that you have a location as part of your submission. 

And so in different states, there are different communities within so there’s different towns and cities and even areas within those towns and cities that are able to support cannabis businesses in different ways. And most regulatory bodies require some sort of a host community agreement to be signed and submitted as part of the application process. 

And sometimes finding that location can be one of the biggest hurdles in your process, which is why working with a real estate agent or broker who understands what your needs are going to be and knows the communities that are looking for whatever type of licensing that you’re looking for. So some rural communities are okay or glad to have cultivation in their communities and some are not. 

So you’re going to want to know and be working with a professional that can help you find a good location. You’re going to want to be in a location where you can be one of the primary licensees in that area so that there’s not a lot of overlap with other licensed operators and that the community is okay with you being there and those types of things. 

The host community agreement’s primary purpose is to provide a mutually beneficial relationship with the community. There’s lots of thoughts on that, but ultimately that is what it’s for and you do want to be in good standing with the community where you want to be. They’re often required, as I’ve already said, as part of the approval process. And usually you don’t want to own real estate in your cannabis entity that owns the licensing. There are lots of cannabis operators that have separate real estate arms where they own some of their real estate, but that’s in a separate entity. So owning real estate in your license holding entity is generally not a good idea. You can talk to your other professionals about that. But owning it as a separate arm sometimes can give you some leverage in your lease agreements. 

So many of the lease agreements that we’ve seen have provisions for rent escalations over time. Usually they start out with a pre licensing cost so that it gives you time to do your build out and get your application and your site completely approved. And then once you become operational, usually or in the first 2nd year, the rent starts to escalate from that point forward. 

So doing some proper prior planning around whether or not your business is actually going to support these lease payments ahead of time is super helpful and a good thing to really be thinking about. You want to take your forecasts and you want to be conservative. And if your most conservative forecast on what you’re going to do for revenue allows you to easily pay those lease payments, even with the Escalations, then you’re in a better spot than if it’s going to be tight ahead of time. 

So some of the other reasons why you generally don’t want to have real estate in a cannabis business license is for financing, reasons for risk of license, forfeiture tax considerations, and overall flexibility. So some things to keep in mind while you’re thinking about:

Do I want to own? 

Do I want to lease? 

Or the other thing is, sometimes investors don’t want to invest in the cannabis license entity, but will invest in your real estate. So that’s something else to think about. Sometimes investments, investors are more interested investing in some of the ancillary businesses or other entities that are not the cannabis license holding entity. So we talked a little bit about why your location matters. I mean, you definitely want to be in a community that wants you there. It is much easier to get through this process with a good host community agreement. And you want to make sure that you’re in a location that you feel comfortable about from a revenue production point of view. And you want to be in a location that you feel like you can make your lease payments. 

 

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