Executive Summary (TL;DR)
- A cannabis landlord workout is usually cheaper (and faster) than litigation when the real value sits in zoning eligibility, buildout, and license-site compatibility—but only if the paperwork preserves your remedies.
- Landlords should triage: (1) cure path with measurable milestones, (2) structured forbearance with collateral/guarantor upgrades, or (3) controlled exit to re-tenant, assign, or sell the asset.
- Buyers/investors should underwrite two scenarios: “tenant stabilizes” vs. “tenant fails”—and price in downtime, re-licensing friction, and re-tenanting costs.
- Sellers/operators (tenants) can often protect enterprise value by negotiating time, transparency, and transfer mechanics (assignment/sale) before default turns into an eviction clock.
- Who should act next: sellers/operators facing distress and buyers/investors evaluating distressed cannabis real estate or operating businesses.
Table of Contents
- Context: why workouts matter in cannabis real estate now
- What sellers and buyers/investors should do next
- Valuation lens: how defaults and workouts change price
- Deal process overview: NDA → LOI → diligence → close
- Due diligence checklist (with table)
- Decision matrix: enforce, forbear, restructure, re-tenant, or exit (table)
- Myth vs. fact: common misunderstandings in cannabis defaults
- 30/60/90 execution plan
- CTA: next steps on 420 Property
Context: why workouts matter in cannabis real estate now
Cannabis properties fail differently than “normal” retail or industrial leases because the site often carries unique value: compliant zoning, buffers, local approvals, and a buildout that matches security and operational requirements. When a tenant defaults, the landlord isn’t just choosing between “evict or forgive.” You’re choosing how to preserve (or recover) a property’s cannabis-ready premium while managing downtime risk.
A practical cannabis landlord workout typically tries to solve three problems at once:
- Time: give the tenant a controlled runway to cure or transition—without waiving rights.
- Control: tighten reporting, access, insurance, and collateral so surprises don’t compound.
- Transferability: create a path to re-tenant or transition the operation (assignment, sublease, sale of business, or full exit).
For operators (tenants), the goal is usually to protect continuity and enterprise value long enough to recapitalize, sell, or renegotiate. For buyers/investors, defaults create opportunity—but only if diligence separates “fixable” from “structurally broken” (zoning, licensing, or market demand).
If you’re actively marketing an asset or testing demand, start with a clear view of comparable demand by reviewing cannabis real estate for lease inventory on 420 Property: Cannabis Real Estate For Lease.
What sellers and buyers/investors should do next
If you’re a seller/operator (tenant) in distress
Focus on preventing the default from becoming a hard stop:
- Surface the real constraint: Is the issue cash flow (temporary), unit economics (structural), or compliance (existential)? A landlord can work with “temporary” if you can prove a credible fix.
- Pre-negotiate a transition path: If you might sell, draft the lease amendment to support a clean transfer—especially landlord consent and assignment standards.
- Build a lender/buyer-ready packet: A clean data room reduces the landlord’s perceived risk and increases your options. Include lease, rent ledger, compliance status, and a transition plan.
If you’re a buyer/investor evaluating a distressed deal
Underwrite the downside first:
- Assume downtime and budget for re-tenanting, re-permitting, and re-commissioning mechanical/security systems.
- Separate real estate value from operating value: A distressed operator can be a weak business in a strong location—or the reverse.
- Confirm transfer mechanics early: In many cannabis markets, the “license + premises” relationship is the deal. If the license can’t move or the premises can’t support a new license, your thesis changes.
If you’re a landlord planning a controlled exit
When enforcement is likely, treat it like a transaction:
- Decide your target outcome: re-tenant, owner-user sale, sale to an investor (with downtime), or restructure into a stabilized cash-flow asset.
- Align remedy strategy to market reality: If the local market is thin, a structured forbearance can outperform eviction—if you tighten controls and improve recoverability.
When you need specialized help (lease counsel, brokers, compliance advisors, escrow), use a targeted directory rather than generic searches: Find cannabis & hemp industry professionals.
Valuation lens: how defaults and workouts change price
Workouts change valuation because they change risk, timing, and transferability.
Operating business value: EBITDA vs. SDE
In lower-middle-market deals, valuation is commonly discussed as a multiple of:
- EBITDA (earnings before interest, taxes, depreciation, and amortization) for larger, more manager-run operations.
- SDE (seller’s discretionary earnings) for owner-operator businesses.
In distress, the multiple often matters less than proof of stabilization. Buyers will discount for:
- Unreliable financials (especially in cash-heavy operations)
- Compliance uncertainty
- Lease fragility (short remaining term, high rent, restrictive assignment)
- Required cure payments and deferred liabilities
The workout as “hidden debt”
Past-due rent, deferred CAM (common area maintenance), unpaid taxes, and vendor arrears function like debt. In LOI terms, it’s often treated as:
- A purchase price reduction, or
- A required payoff at closing, or
- A structured repayment (sometimes documented alongside the forbearance)
Working capital and “survival liquidity”
Working capital is the cash and near-cash needed to run the business day-to-day. In cannabis, working capital needs can spike due to:
- Tax friction (including Internal Revenue Code Section 280E (280E) constraints on deductions for businesses trafficking in federally controlled substances)
- Banking/processing limitations
- Inventory and compliance costs
A buyer who ignores working capital in a distressed scenario often “wins the price” and loses the deal later.
Real estate value: the cannabis-ready premium
For landlords/investors, value is tied to:
- Zoning verification: Is the property truly eligible for the intended use now (not “it used to be”)?
- Buildout replacement cost: security, vaulting, HVAC, odor mitigation, fire/life safety upgrades
- Lease term and options: time is value when re-tenanting is slow
A strong cannabis-ready site can justify patience (forbearance) if the tenant can prove a credible path. A marginal site should push you toward exit faster.
For a deeper valuation framework that ties together business performance and market risk, use: Cannabis Business Valuation: Methods and Best Practices.
Deal process overview: NDA → LOI → diligence → close (workout edition)
Even “just a workout” benefits from a deal mindset.
- NDA (non-disclosure agreement)
If a sale, assignment, or new capital is possible, protect information early—financials, compliance documents, and lease terms. - LOI (letter of intent)
For a transition (sale/assignment), the LOI should address:- Who cures arrears and when
- Landlord consent timeline and standards
- Temporary occupancy/operation rules during transition
- Escrow mechanics and closing conditions
- Diligence
This is where cannabis differs most. Beyond the standard lease and financial review, diligence includes zoning and licensing compatibility, security requirements, and any restrictions on change-of-control. - Close
Closing deliverables often include updated insurance certificates, estoppels, cure payment confirmations, and documented consent/assignment instruments.
If your situation may evolve into a business sale (with or without real estate), it’s helpful to align your “workout file” with standard M&A documentation—so you’re not rebuilding the plane mid-flight. A solid overview of that broader process is here: Guide to Buying and Selling Cannabis Businesses.
Due diligence checklist (workout + transaction readiness)
A disciplined diligence process reduces “default surprises” and makes either a cure or exit more likely.
Diligence checklist table
| Workstream | What to collect / confirm | Why it matters in cannabis | Common red flags |
|---|---|---|---|
| Lease + default status | Lease, amendments, rent ledger, notices, cure periods, options | Determines leverage and timeline | Informal side deals; unclear default status; short term left |
| Consent + transfer rights | Assignment/sublease clauses, change-of-control language, landlord consent standards | Controls whether a sale/transition is feasible | Absolute discretion; prohibited use; no assignment path |
| Collateral + liens | UCC/lien search, equipment lists, security interests | Impacts who owns what and who gets paid first | Blanket liens; leased equipment not disclosed |
| Licensing | Current license status, renewal dates, enforcement history, ownership/control requirements | License issues can kill re-tenanting/sale | Suspensions; unresolved violations; unclear ownership |
| Zoning + site compliance | Zoning verification, buffer compliance, allowed-use documentation | A cannabis-ready site is often the value | “Grandfathered” assumptions; expired approvals |
| Operations + compliance | Security plan, SOPs, inventory controls, track-and-trace access | Buyers will diligence operational compliance | Gaps in logs; weak access control; missing SOPs |
| Financial quality | Bank statements, tax filings, POS reports, normalization notes | Supports valuation and cure capacity | Revenue mismatch; tax exposure; undocumented cash |
| Sale structure | Asset vs. stock sale implications; assumed liabilities | Changes what transfers and what stays behind | Unknown liabilities; contracts not assignable |
| Legal terms | Reps & warranties, indemnities, release language in forbearance | Prevents a workout from becoming a waiver | Overbroad releases; silent waivers |
| Transition plan | Staffing, vendor continuity, customer concentration, timeline | Stabilizes cash flow and reduces downtime | No operator bench; reliance on one supplier/customer |
Decision matrix: enforce, forbear, restructure, re-tenant, or exit
A clean decision process prevents emotional or sunk-cost decision-making.
| Option | Best when | Upside | Risks | What to document |
|---|---|---|---|---|
| Enforce/evict | Tenant is non-cooperative, non-compliant, or prospects are better vacant | Resets control quickly | Downtime; legal cost; uncertain mitigation rules | Notices, access protocols, preservation of evidence |
| Short forbearance | Problem is temporary and tenant is transparent | Preserves cash flow, avoids vacancy | “Delay without cure” | Forbearance agreement, milestones, reporting |
| Restructure lease | Rent is above market or term is misaligned | Stabilizes asset, improves tenant survival | Concessions can become permanent | Amendment with step-ups, extensions, security enhancements |
| Transition via assignment/sale | Tenant has buyer interest but needs time/consent | Faster recovery than re-tenanting from scratch | Consent delays; buyer diligence failure | Consent roadmap, estoppel, cure-at-close terms |
| Controlled re-tenanting | Property is strong; tenant is weak | Can improve tenant quality and rent | Compliance friction; buildout mismatch | Marketing plan, use parameters, site readiness checklist |
| Sell asset (vacant or distressed) | Capital is better redeployed | Immediate liquidity | Price discount | Clean diligence package, realistic “as-is” narrative |
Use this matrix in your next landlord/tenant meeting and force a single, testable question: “What has to be true in 30 days for this option to remain viable?” That’s the backbone of a real cannabis landlord workout.
Myth vs. fact: common misunderstandings in cannabis defaults
- Myth: “Cannabis leases aren’t enforceable.”
Fact: Enforceability is a legal question that depends on jurisdiction and contract terms; in practice, disputes often settle based on leverage, timelines, and business realities—not slogans. - Myth: “Eviction is always faster than a workout.”
Fact: When a property is highly specialized, a negotiated transition can beat vacancy—especially if re-tenanting requires significant compliance or buildout work. - Myth: “A buyer will ‘take over the lease’ automatically.”
Fact: Many leases restrict assignment or treat ownership changes as a trigger. Landlord consent can be the gating item. - Myth: “If the business sells, the site is solved.”
Fact: A buyer still needs a workable compliance path, a viable lease term, and a clear story for regulators and stakeholders. - Myth: “The landlord can ignore re-tenanting and just charge the old tenant forever.”
Fact: Rules on mitigation and damages vary by state and lease language; landlords generally benefit from documenting reasonable re-letting efforts regardless.
30/60/90 execution plan (workout to resolution)
First 30 days: stabilize and choose a path
- Freeze ambiguity: written status of default, cure deadlines, and access rules.
- Build a “deal-ready” package (lease, ledger, notices, licenses, zoning confirmation).
- Set a milestone-based plan (weekly reporting, cure payments, capital plan).
- Decide the “Plan B” (re-tenanting criteria, broker outreach, or sale strategy).
Days 31–60: run parallel tracks
- Track A (cure): verify performance against milestones; document all concessions.
- Track B (transition): quiet marketing, buyer outreach, or assignment pathway.
- Refresh underwriting: downtime budget, pricing, and “minimum acceptable outcome.”
- Begin diligence with any credible counterparty under NDA and move toward LOI.
Days 61–90: execute and close
- If curing: convert forbearance into a formal amendment with clear economics.
- If exiting: finalize consent, estoppel, payoff letters, and closing deliverables.
- Confirm operational handoff details (keys, access control, vendor accounts, utilities).
- Document post-close expectations to avoid immediate re-default.
CTA: next steps on 420 Property
This article is for educational purposes only and does not constitute legal, financial, tax, or business brokerage advice. Always consult qualified professionals before making decisions, and verify all requirements with the appropriate authorities and counterparties.
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