Facilities & real estate
Why do cannabis properties trade at higher cap rates?
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The answer
Cannabis properties price at wider cap rates than comparable conventional buildings because the buyer pool is smaller, conventional bank financing is largely unavailable, and the asset's value is partly contingent on a license that can be revoked, non-renewed or non-transferable, all of which investors price as additional risk premium.
Range reflects C3's Michigan transaction experience, not a published dataset.
License risk is priced into the building, not just the business
A building's highest use may be entirely dependent on a specific license remaining active at that address. If the license lapses, the building often reverts to a lower-value conventional industrial or retail use, so the cap rate has to compensate for that downside scenario even when the current tenant is performing well.
Go deeper
Related pages on this site
- Will a bank finance a cannabis property?
- What happens if the tenant loses its license?
- Investment sales
- Michigan distressed market
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