Cannabis businesses will face challenges trying to open in CT, experts say

Finding a location will likely be a challenge for those looking to start one of Connecticut’s first recreational cannabis businesses, experts say.

Nationwide, federal law is making it harder for cannabis companies to get loans to buy property, and many landlords who have outstanding debts with major lending institutions are unable to rent at home. these types of companies, said industry experts.

Several municipalities in Connecticut have already banned sales of recreational cannabis, while zoning regulations in communities that will allow the sale of the substance limit opportunities to open a business.

And the specific needs of cannabis businesses such as space, security features or increased electricity and water requirements for growers further complicate matters, experts said.

“Operating in the cannabis space is still a bit of a taboo, so when looking to interact with individuals or to buy something or rent, it’s become a bit difficult,” said Luis Vega, CEO and founder of Wepa! Farms.

Vega’s farm grows hemp products and sells them in North Haven. Vega is looking to develop and open a recreational cannabis business in Bridgeport. Earlier this month, the state announced it would begin accepting applications in February for recreational use licenses.

Vega said he had previously encountered obstacles in finding a location for his future business. It’s hard to find a space large enough to grow at a reasonable price, he said.

It took him six months to find his first location and another year to identify the North Haven location when he wanted to move to a new location, Vega said.

“One piece of advice I always tell everyone is to be as candid as possible,” Vega said. “…We understand that the rent is usually a bit higher than normal due to its more taboo nature.”

Matte Namer, founder and managing director of Cannabeta Realty, said their company, which focuses on cannabis real estate, tries to be “very upfront” when contacting commercial landlords about a business. There are complicated workarounds for homeowners who have mortgages with large federally insured lenders, but those can be difficult and expensive, Namer said.

Since cannabis sales are federally illegal, banks could face penalties if they accept money from the sale of the substance.

The SAFE Banking Act, which was passed by the US House of Representatives, would prohibit federal regulators from imposing sanctions on banks that accept money from legitimate cannabis businesses.

“You have businesses that are all cash – it’s just an untenable and dangerous situation,” said Aaron Smith, executive director of the National Cannabis Industry Association.

Smith said the bill, which was not taken up by the Senate, would address a problem that disproportionately affects small businesses and “everyone downstream,” i.e. owners or other ancillary companies that touch the cannabis industry.

Anthony Coniglio, president of NewLake Capital Partners, said much of the success of the cannabis real estate market will depend on zoning regulations or bans that localities enact on recreational sales.

“I think No. 1, understanding the opt-out and how many cities and municipalities opted out will be really important to understanding real estate,” Coniglio said.

Coniglio said he thinks many local leaders might wait to see how the recreational cannabis industry takes off in other municipalities before allowing sales in their community.

NewLake Capital provides funding for cannabis start-ups. In some cases, the group buys the property or provides money for improvements.

Common upgrades include increased water or electricity capacity for growth, as well as security upgrades, Coniglio said.

“Many require a significant security apparatus, so we provide capital for all of these enhancement activities,” he said.

Despite the challenges, investors said they expect the market — both through cannabis product sales and property profits — to soar once it gets going.

“It’s exciting that Connecticut, New Jersey and New York all legalized in such a short time in each other,” Namer said. “And I think collectively these states represent what will likely become the largest cannabis market in the world.

“I think it’s really exciting and will change the industry as a whole.”

Coniglio said if Connecticut could establish cannabis businesses faster than its neighbors, it could reap the benefits of interstate sales.

“If someone has a buying behavior because they work in Connecticut, but live in Westchester, and there’s a dispensary they like to stop at on their way home, will they really change that behavior?” said Coniglio.

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