The legalization of non-medical cannabis and the upcoming legalization of cannabis derivatives and edibles have had an invigorating effect on many investors and entrepreneurs, who see this as an exceptional business opportunity. However, before embarking on the development of a cannabis cultivation or processing project, several important elements must be taken into account.
Some real estate considerations
On May 8, 2019, Health Canada changed the process for the issuance of new licences for both cannabis production and processing, and for the sale of cannabis for medical purposes, in order to restrict it to applicants who already have fully constructed cultivation or production facilities, which facilities must of course meet all applicable regulatory requirements in this regard. This major change has increased the financial risk for investors and entrepreneurs, since the majority of the funds required for these projects will have to be invested before receiving authorization from Health Canada to operate the site. The uncertainty of obtaining a licence and the novelty of the licensing process create a significant risk, as the grounds for refusal will be subject to Health Canada's discretion and are unknown to date.
This situation calls for creativity when it comes to the purchase or lease of the land and buildings where these projects will be established, particularly where investors want to limit their financial risks (for example, proceeding by way of an option to purchase or a conditional offer to lease).
Indeed, investors should make it a priority to ensure that the proposed property (or properties) will allow their cannabis-related project to be implemented. In particular, they should consider the following:
- Purchase or lease: Although it is not required that the applicant for a licence own the land or the facilities thereon, the application for a licence must be accompanied by proof of the owner's consent for the leased premises (including the facilities thereon) to be used for the purpose of producing, processing or selling cannabis.
- Zoning and siting: It will be essential to clearly define and analyze the zoning bylaws applicable to the proposed site for a project, in addition to determining all the anticipated land uses planned for the project. In fact, cities and municipalities have the authority to determine the uses permitted on their territory. They can for example restrict the processing of cannabis to industrial zones and allow cultivation in agricultural zones only, or provide that all cannabis-related projects be located in one or more specific areas on their territory. In this regard, we believe that the ideal situation would be to establish the project in a zone where the city (or the municipality) has expressly determined that the cultivation or processing of cannabis is permitted. In addition, even if the project is located in a zone where cannabis-related operations are permitted, restrictions in terms of minimum separation distances could apply (such as minimum distances between two production or processing facilities; or minimum distances between production or processing facilities and residential zones, schools, day-care centres and playgrounds).
- Characteristics of the proposed site(s): Will the existing infrastructure serving the site(s) allow for the production or the processing of cannabis (which could, for example, lead to increased water and electricity needs)? Is the surface area of the site sufficient to meet construction standards and the urban-planning norms of the city or municipality concerned? If necessary, is the surface area of the land on which food-processing installations are already located and operating sufficient to allow the addition of a separate building that will allow cannabis processing?
Obviously, these are only some of the considerations that will have to be added to all the others that should be subject to due diligence prior to the purchase or lease of a property for a cannabis project.
Do you think you have found the ideal location for your project? It's better to make sure!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.