If you’re evaluating a cannabis prospect for your retail, warehouse, or flex asset, your job is to convert operational risk into contract terms and verifiable milestones. This cannabis landlord guide gives you a lender-grade underwriting framework across three pillars—financials, compliance, and security—and shows how to translate findings into rent commencement triggers, TI scopes, and covenants that protect DSCR. As you benchmark rent and delivered specs, review live cannabis properties for lease to validate pricing and tenant demand in your market.
Executive Summary
- Financials: Underwrite maintainable EBITDA at the unit level, not just corporate rollups. Validate margins, labor, shrink, and occupancy cost ratios; require a clean QoE-ready bridge from revenue to cash flow.
- Compliance: Confirm local authorization (zoning/CUP), state license status, and build-out readiness (e.g., C1D1 for extraction, odor control, life-safety). Tie rent commencement to permits and utility “permission to operate,” not calendar dates.
- Security: Require a site-specific plan (cameras, access control, vaulting/SOPs) that meets AHJ expectations and insurer requirements; harden façade and perimeter to reduce loss and downtime.
- Paper it: Use an event-based LOI/lease (and APA if a business sale is involved), clear TI allocations, and holdbacks linked to inspections/commissioning.
- Outcome: Faster lease-up, fewer re-trades, and coverage that survives price compression or permitting delays.
Cannabis Landlord Guide: The Three Lenses of Underwriting
Think of underwriting as three stacked gates. A tenant advances only when each gate is sufficiently de-risked and papered.
1) Financial Underwriting: Cash Flow That Pays the Rent
What to ask for (core packet)
- Trailing 24 months P&L by location; monthlies for the last 12 months.
- Category mix and margin (flower, vape, edibles, wellness, accessories).
- Unit-level EBITDA with a transparent bridge (gross → contribution → EBITDA).
- Labor model (sales per labor hour, peak staffing), shrink logs, and promo cadence.
- Occupancy cost: base + NNN + utilities + security; historical DSCR if financed.
- If multi-store: store-by-store rollup and intercompany agreements.
How to analyze it
- Top-line engine: Visits × conversion × AOV (average order value). Look for stability through seasonality, not just promo spikes.
- Margin quality: Discount-heavy revenue with thin margins is fragile; ask for promotion calendars and vendor funding details.
- Labor & shrink: Weak cash controls or frequent inventory variances foretell issues; tie cure covenants to measurable improvements.
- Occupancy cost ratio: Sanity-check rent against normalized sales; require a downside case (price compression or new-door density).
- After-tax modeling: Federal tax treatment under IRC §280E limits ordinary deductions for licensed plant-touching operators; it doesn’t hit landlords directly, but it affects tenant free cash flow and therefore coverage (DSCR). Underwrite conservatively and ask for tax posture documentation.
What to paper
- Financial covenants: Minimum cash on hand, timely tax remittance, and evidence of insurance; monthly KPI reporting (sales, margin, shrink, labor).
- Reporting rights: Right to audit CAM and gross sales (if percentage rent or covenants are tied to revenue).
- Remedies: Graduated remedies for covenant breaches (plan submission → cure period → rent escrow/letters of credit taps).
2) Compliance Underwriting: Local Control, Licensing, Code
In cannabis, local authorization gates the state license. Your job is to verify the path and timeline to “legal to open,” then link it to rent.
Zoning & CUP (land-use)
- Confirm permitted use by municipal code citation; map required buffers (schools/daycares, etc.) using the city’s measurement method (parcel line vs. building entrance).
- Determine whether approvals are ministerial (staff-level) or discretionary (Planning Commission/City Council), and obtain the hearing calendar.
- Extract draft conditions of approval: odor control, hours, parking counts, lighting spill (for greenhouses), waste handling, and any signage/ façade requirements.
Building/Fire & Specialized Uses
- For manufacturing/extraction: identify C1D1/C1D2 spaces, hazardous exhaust, gas detection, explosion-proof equipment listing, and process safety documents that the AHJ will require.
- For retail: egress/occupant load, secure storage, camera coverage, and delivery/staging if allowed.
- For cultivation: HVACD loads (latent removal and reheat), condensate drainage, odor capture, and power distribution; commissioning plans to validate performance.
Licensing & Change of Ownership
- Require documentary proof of the tenant’s local authorization path and state licensing status (initial, provisional, annual).
- If you are also the seller of the operating business, coordinate APA terms with lease commencement; align both to regulatory approvals and any lender consent.
What to paper
- Commencement clause: “Base rent commences the later of (i) issuance of [named local permits/operating permit] and (ii) permanent electric meter set and utility ‘permission to operate.’”
- Outside dates: Tied to hearing calendars and appeal windows.
- TI allocation: Landlord-delivered base-building scope (e.g., switchgear, shafts, roof penetrations); Tenant-delivered process utilities and trade fixtures.
- Holdbacks: A portion of TI allowance or security held until inspections/commissioning pass.
3) Security Underwriting: Physical, Operational, Insurance
Security failures are expensive (shrink, downtime, premiums). Require a plan that satisfies regulators and insurers—and confirm it’s buildable.
Plan elements
- Video: Coverage inside/outside; resolution, retention days, and uptime that meets local rule.
- Access control: Credentialed entries (front, secure store, vault, MIP areas); visitor logs.
- Vaulting & safes: Construction spec; UL rating; anchoring; two-person rules.
- Alarm & monitoring: Redundancy for communications; panic devices; integration with video.
- SOPs: Opening/closing, cash handling, inventory cycle counts, incident response.
- Lighting & façade hardening: Exterior illumination, bollards where appropriate, glazing specification.
What to paper
- Security exhibit attached to the lease with performance requirements (not brand mandates).
- Insurance covenants: GL, property/stock, business interruption, product (for MIPs/retail), plus endorsements required by local rule; proof before possession.
- Cure windows: Time-bound remediation for system downtimes or audit variances.
Converting Underwriting Into Rent and TI That Work
Rent That Matches Reality
- Phased rent: Reduced base during build-out ramp, stepping to full base after permits and utility energization.
- Abatement: Tied to event milestones (CUP issuance, final inspections, utility PTO).
- Escalators: Reasonable annual bumps; avoid aggressive step-ups before stabilization.
TI That De-Risks Delivery
- Scope split: Landlord: base-building (power gear, shafts, egress). Tenant: process utilities/equipment (extraction skids, cultivation lights/dehu, racking).
- Draw controls: Pay against stamped drawings, lien releases, and inspections.
- Commissioning: Explicit acceptance tests for HVACD and specialty rooms; rent step-up only after pass.
Protections That Keep Coverage (DSCR)
- Financial backstops: Guaranties, LOCs, or prepaid rent that burn off post-stabilization.
- Reporting cadence: Monthly sales & margin; quarterly financials; annual CPA review if size warrants.
- Transfer controls: Assignment permitted to affiliates or qualified buyers with equal/greater net worth and regulatory approvals; no “sole and absolute discretion.”
Red Flags (Renegotiate or Decline)
- No written path for local approvals or vague buffer interpretations.
- Utility uncertainty (no planner scope or long-lead transformer without mitigation).
- C1D1 guesswork (no design basis, equipment listing, or hazardous exhaust plan).
- Unverifiable financials (only top-line screenshots; no margin detail or shrink logs).
- Security on paper only (no vendor scopes, retention specs, or insurer alignment).
- Lease posture that blocks assignment, has unbounded CAMs, or demands early full rent before approvals.
Sample Clauses You Can Adapt (Plain-English, Deal-Ready)
- Permitted Use: “Retail sale of cannabis and cannabis products and ancillary merchandise, including delivery where permitted; or cannabis manufacturing [non-volatile/volatile as applicable]; or indoor cultivation.”
- Commencement/Abatement: “Base rent commences the later of (i) issuance of [operating permit/building & fire finals] and (ii) permanent electric service with utility permission to operate. Abatement continues until both occur.”
- TI Responsibility: “Landlord delivers base-building improvements per Exhibit X. Tenant delivers process utilities and trade fixtures per Exhibit Y.”
- Reporting: “Tenant provides monthly sales by category, margin, shrink, and labor; quarterly financials; and annual CPA-reviewed statements.”
- Security: “Tenant shall maintain security infrastructure in accordance with Exhibit Z; any outage >24 hours must be reported with corrective plan.”
- Assignment: “Assignment to affiliates or to a buyer meeting net-worth and regulatory criteria shall not be unreasonably withheld, conditioned, or delayed.”
Diligence Checklists (Copy/Paste)
Financial
- T-24 revenue by category; trailing 12 monthly detail; EBITDA bridge; promo calendar; shrink logs; cash management SOPs.
- Rent/NNN/utilities/security history; proof of timely tax remittance; insurance COIs.
Compliance
- Zoning use-table citation, buffer map, CUP status (calendar + conditions), building/fire permit plan set, inspection history.
- License status letters and change-of-ownership path if relevant.
Security
- Camera coverage map and retention spec; access control plan; vault spec; alarm certificates; incident logs; insurer requirements.
Facilities/Utilities
- Load letter and one-line; utility planner correspondence; equipment submittals (HVACD, odor capture, C1D1 gear).
- Commissioning plan with acceptance tests and seasonal setpoints.
Legal
- Draft LOI/lease with event-based commencement and options; SNDA/estoppel templates; APA (if asset/stock sale involved).
Landlord Playbook by Asset Type
Street Retail / Neighborhood Center
- Focus on visibility, ingress/egress, dedicated parking, and signage entitlements.
- Security externalities (shared center) may require extra lighting/camera coverage and façade hardening.
Industrial / Flex (MIPs, Cultivation)
- Prioritize power (kVA), room for gear, loading, and ceiling heights; evaluate C1D1/C1D2 segregation and hazardous exhaust paths.
- Odor control and wastewater management affect both TI and ongoing OPEX—budget and covenant accordingly.
Greenhouse / Ag-Adjacent
- Confirm setbacks, lighting spill controls, water rights, and odor mitigation; mechanical dehumidification and thermal screens are common conditions.
How to Use 420 Property to Win the Timeline
- Benchmark rent vs. delivery: Scan industrial and retail cannabis spaces for lease to compare face rent, power specs, and TI posture across submarkets.
- Market-test demand: Use active for-lease inventory to validate your target rent and concessions.
- List with certainty: If you’re marketing a vacancy, publish power letters, zoning/CUP status, and TI drawings. Exchange-ready and lender-disciplined tenants move fastest through diligence.
FAQ (What Owners Ask Most)
Do cannabis tenants always pay higher rent?
Premiums appear where compliant inventory is scarce or where landlords deliver power/TI certainty. In competitive corridors, rent converges toward market retail/industrial benchmarks.
How do I protect coverage (DSCR) during delays?
Abatement tied to permits, inspections, and utility PTO; phased rent; and outside dates shaped by agency calendars—not fixed dates.
What if the tenant’s business plan changes?
Define permitted use broadly enough for minor pivots (e.g., adding delivery). For major changes (e.g., adding extraction), require landlord consent plus updated security and code exhibits.
Lease to cannabis on purpose, not on hope. Use this cannabis landlord guide to underwrite financials, compliance, and security, then lock risk to events in your lease. Start by benchmarking rent and delivery on 420 Property’s cannabis-for-lease marketplace and shortlisting prospects whose approvals, power, and TI can actually cross the finish line.
Disclaimer
This article is for educational purposes only and does not constitute legal, engineering, financial, or tax advice. Always consult qualified professionals and your local Authority Having Jurisdiction before making decisions.
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