Cannabis real estate owners have limited access to capital, but if passed, the Safe Banking Act could change that.
The cannabis industry is growing rapidly, but for real estate owners, working with cannabis businesses still poses significant risk. Cannabis-occupied real estate has limited access to capital as well as some uncertainty around collection of rent and other income due to the federal illegality of the business. The Safe Banking Act could help to mitigate the risk by prohibiting regulators from penalizing banks and other lenders from providing banking services to a legitimate cannabis-related business.
“Cannabis tenant limit the landlord’s ability to refinance the property. This can vary from landlord to landlord, depending on if there is financing on the property and the timing of when they are planning to refinance,” Matte Namer, founder and CEO of Cannabeta Realty, tells GlobeSt.com.
The Safe Banking Act first passed in 2021 in the House, but it has yet to pass the Senate. Namer believes that it has a real chance of passing in the current legislative session. With increased confidence that the act will pass, banks are starting to provide capital for cannabis-occupied real estate. “I think that many banks see that there is an increased chance of the Safe Banking Act passing this year,” says Namer. “That is having a little bit of an effect on the premium that landlords are looking to get from cannabis companies, because presumably when Safe Banking passes, there won’t be this discrepancy in terms of financing.”
In some ways, the Safe Banking Act is better for the cannabis business than federal legalization, which would create abundant competition. “The idea of federal legalization scares landlords and cannabis cultivators that are operating in states where the climate is not as ideal for greenhouse growing,” says Namer. “There is a fear that facilities in these places could be obsolete in an area where there is unabridged interstate commerce of cannabis.”
While the Safe Banking Act could open the flood gates for banking institutions to pursue these deals, Namer says that there is no guarantee that they will. “Presumably, it will allow for a lot more access to the banking industry and it will help lenders be more comfortable with issuing mortgages on properties leased to cannabis operators,” Namer explains. “Large banks could still decide that they don’t want to issue mortgages on cannabis real estate because they may just determine that it’s an asset class that they don’t want to be exposed to.”