Launching a cannabis business or expanding into a new market is an exciting venture, but it comes with its fair share of challenges. One of the most significant obstacles entrepreneurs face is navigating the complex world of cannabis zoning regulations. These regulations vary from city to city, making it crucial to have a deep understanding of local laws before establishing a marijuana business.
In this article, we will explore the intricacies of cannabis zoning and provide valuable insights on how to navigate this maze successfully. From understanding zoning rules to best practices and real-life examples, this article will equip you with the knowledge needed to overcome zoning hurdles and set up a thriving cannabis business.
State vs. Local Regulations
While cannabis zoning laws are regulated at the state level, it’s the local governments that ultimately determine where a cannabis business can operate. This bifurcation of power allows hundreds of cities and counties to customize their zoning laws based on their communities’ unique needs and preferences. Cannabis zoning laws can vary by location and type of business activity, making it essential for cannabis entrepreneurs to research the specific laws applicable to their proposed business location.
Types of Cannabis Businesses
Under the broad umbrella of the cannabis industry, there are six primary classes of licensed cannabis businesses, each subject to different zoning laws:
The zoning laws applicable to a cannabis dispensary could be vastly different from those for a cultivation or manufacturing business. Therefore, understanding the specific zoning laws applicable to the type of cannabis business you plan to operate is crucial.
Common Zoning Restrictions
While zoning laws vary by location and business type, there are a few common restrictions that new cannabis entrepreneurs should be aware of:
- Buffering: Many local governments require cannabis businesses to be located a certain distance away from schools, parks, and other specified areas.
- Density: There might be limits on the number of cannabis businesses that can operate within a certain area.
- Operational Characteristics: These could include restrictions on hours of operation or odor management for manufacturers.
- Storefront Characteristics: Regulations may dictate aspects like lighting, outward-facing displays, and signage.
Understanding these common restrictions can help entrepreneurs identify suitable locations for their cannabis businesses.
Buffering and Density Regulations
Buffering and density regulations are critical aspects of cannabis zoning laws. For instance, some states require cannabis businesses to be at least 1,000 feet away from schools and parks. Additionally, many local governments limit the number of cannabis businesses that can operate within a specific area, which could necessitate sharing a space with other businesses or paying a premium for exclusivity.
Understanding Green Zone Regulations
Green zone regulations refer to the specific areas where cannabis businesses are permitted to operate. In many cities, green zone regulations severely restrict the potential locations for cannabis businesses, making real estate one of the biggest challenges in starting a cannabis venture. Therefore, potential cannabis business owners must stay informed about the city’s ordinances and available commercial property.
Navigating Local Zoning Regulations
Navigating local zoning regulations requires a deep understanding of the specific laws applicable to a business’s proposed location. This includes staying updated on any changes to the local zoning laws and understanding how these changes could impact their business. For instance, a local government may decide to ban certain types of cannabis businesses or impose a municipal tax on cannabis-related operations. Keeping abreast of these changes can help businesses plan their operations more effectively.
Best Practices for Navigating Cannabis Zoning
Early and Frequent Communication
Establishing open lines of communication with municipal officials is crucial for overcoming zoning challenges. By engaging early and frequently, entrepreneurs can gain valuable insights into local regulations, demonstrate their commitment to compliance, and address any concerns promptly. Building positive relationships with local authorities can significantly streamline the zoning process and increase the chances of obtaining necessary approvals.
Seek Industry Stakeholder Support
Industry stakeholders, such as cannabis industry associations and advocacy groups, can provide invaluable support and guidance when navigating zoning regulations. These organizations often have deep knowledge of local regulations and can offer insights into best practices for addressing zoning challenges. Collaborating with industry stakeholders can enhance your understanding of the regulatory landscape and increase your chances of success.
Engage Legal Experts
Navigating cannabis zoning regulations can be a daunting task, especially for entrepreneurs without legal expertise. Seeking guidance from cannabis-focused attorneys or law firms can provide critical insights into local zoning laws, help navigate the permitting process, and ensure compliance with all legal requirements. Legal experts can also assist in drafting necessary documents, such as land use applications and lease agreements, to protect your interests and ensure a smooth establishment of your cannabis business.
Where should your business be located?
Now that we’ve discussed zoning rules, factors you should consider based on your cannabis business type.
Cannabis Distributor Location
The biggest tip for distributors? Try to find space that cuts down on your travel time.
It’s worthwhile to pay a premium for a centrally located space where you can easily distribute your products.
Alternately, cannabis distributors can save money by doing “batch” distribution, i.e., transporting their product to one given region each day.
For example, on Mondays, you ship your product to the south; Tuesdays are for your western region; etc.
For vertically integrated operators, both distributors and retailers, minimize the distance between your production facility and your retail outlet as much as possible.
The time and effort it takes to bridge that gap can have a significant impact on your bottom line. More time on the road increases costs and the possibility of more accidents.
Cannabis Cultivator Locations
There are a lot of variables that factor into finding space for a cannabis grow operation.
First, consider the restrictions that your state has imposed on locating your premises away from public schools, parks, libraries, or other businesses where minors frequent. There is typically a 10,000-foot rule on how close you can be to these types of organizations.
Next, decide if your cannabis operation will be indoor or outdoor.
Consider factors like state regulations, precipitation and climate, soil quality, and open space.
For example, Washington permits outdoor cannabis production as long as there is an enclosing, sight-obscuring wall that is at least eight feet high. However, in Colorado, producers are prohibited from growing cannabis outside of an enclosed location with a roof structure.
If your state does permit outdoor cultivation, keep in mind that your operation will be susceptible to weather, pests, and drought. Cannabis is a fickle plant, and it may be better for your bottom line to open an indoor cultivation center.
The next most significant factor is space.
As a cultivator, your profit depends on your output, which your footprint will determine. Know how much cannabis you must sell to make a profit, and then convert that into ROI for your space.
How much space is enough?
Experts recommend that cultivators allow for at least a 5-gallon pot per cannabis plant, so at least 24″ square per plant, plus additional room for walking paths, etc.
Because cannabis requires a lot of light, you will also need a greenhouse-specific HVAC system to keep your space ventilated and cool. That will add to your footprint and space needs. State and local regulations furthermore require your greenhouse to have access to the proper water supply and wastewater disposal facilities; a single cannabis plant can use as much as 22.7 liters of water per day.
Lastly, when looking at a cultivation operation, get some initial numbers on utility costs and look into investing in energy efficiency. If you’re an indoor grower, reducing your cost/kWh by 30-50% will have tremendous benefits for your bottom line and potentially lead to significant tax savings!
Retail Cannabis Locations
Real estate for a cannabis dispensary is probably the most competitive of any of these business verticals.
Many cities are restricting the number of business permits available to dispensary operators; as a result, landlords can charge high rent and set very favorable lease terms.
Retailers who work with a landlord should approach your tenant agreement with the same thoroughness that you would a business permit application. Provide your business plan, financial projections, and anything else that makes it clear you aren’t a fly-by-night business. Demonstrate your security measures and how you will care for the property.
If you are waiting for your license application to be approved, our experts suggest negotiating for a contingency clause should your operation not be approved by the city.
Some landlords will accept a larger up-front deposit with an agreement that if your permit isn’t approved, they keep your cash. This gets you out of paying a long-term lease, which is costly upfront but better in the long run. Another good idea is to prevent the need for looking for real estate in the future by signing as long a lease as possible.
If you plan to purchase property, make sure you read the city ordinances carefully to be sure you can operate your business in the industrial zone. Consider looking for a space where you can use the building for another use other than cannabis.
Customizing the space is a critical way that retailers set themselves apart from the competition.
Industry experts found that the average cannabis dispensary brings in $974 per square foot, outpacing Whole Foods’ average $930 in revenue per square foot. So, while finding a space can be labor-intensive, cannabis retail spaces that are well-designed tend to pay off in the long run.
Launching a cannabis business involves navigating a complex web of zoning laws and regulations. Understanding these laws and planning accordingly can significantly increase the chances of success in this competitive industry. As the cannabis industry continues to evolve, staying abreast of the latest changes in zoning laws and regulations is crucial for any cannabis entrepreneur. From finding the perfect location to ensuring compliance with various security requirements, every aspect of the business needs careful planning and consideration. But with the right guidance and resources, navigating the complex world of cannabis zoning laws can be a manageable task.
As GreenGrowth CPAs, we are committed to empowering our clients with informed business decisions. Our approachable and professional tone aims to make complex information accessible, accurate, and actionable. We offer a sense of security and commitment to business growth, helping cannabis entrepreneurs navigate the intricate landscape of cannabis zoning laws seamlessly.
Disclaimer: The information provided in this article is for informational purposes only and should not be construed as legal or professional advice. It is recommended to consult with legal experts and local authorities to ensure compliance with all applicable laws and regulations.