How to Finance Cannabis Property in California
Financing a California cannabis property starts with the collateral and its proposed use. A vacant warehouse, a farm with existing cultivation permits and a storefront leased to an operator create different underwriting questions. Give your financing source a clear description of the cannabis use, occupancy and what you are buying before you rely on a term sheet.
California cannabis properties for sale · Discuss your commercial property search
Compare common purchase structures
| Structure | Questions for the buyer |
|—|—|
| Cash or equity | How much capital remains for escrow, repairs, approvals, insurance, taxes, working capital and a delayed start? |
| Seller financing | What are the interest rate, maturity, amortization, balloon, collateral, guaranties, release provisions and default remedies? Can the seller carry a note on the proposed terms? |
| Specialty lender or private credit | Does the lender allow the actual use and tenant? Ask about origination, extensions, reserves, renewal, prepayment, cash management, debt-service coverage and collateral valuation. |
| Real estate purchase with an operating tenant | Has the lender reviewed the tenant and actual use? Confirm collected rent, lease term, tenant obligations, replacement demand and the cost of re-leasing. |
| Sale-leaseback | Model the purchase price and the operator’s rent obligation together. Review maintenance, capital spending, default, lease assignment and purchase option terms. |
FinCEN publishes guidance on how financial institutions approach banking services for marijuana-related businesses. Each lender and bank has its own eligibility and underwriting process. Get the proposed use accepted in writing by the parties you will rely on. FinCEN guidance
Build a financing package around the property
Prepare a purchase-price allocation and a list of included fixtures, equipment, land and improvements. Provide available local approvals, the premises plan, title and access information, insurance terms and an estimate of remaining construction or upgrade costs. For occupied assets, share signed leases, collections and material tenant obligations. For properties tied to an operating business, ask which business records and ownership disclosures the lender needs.
Calculate the cash needed after closing
Model debt service, property taxes, insurance, utility minimums, security, maintenance, professional fees and required reserves. Estimate costs and timing under a base case, a delayed-approval case and a scenario where the property is leased or sold for a conventional use. For each case, calculate when cash falls below the reserve you need. Include the time required to refinance or sell if the note has a balloon payment.
Compare debt quotes on the same timeline
Use the same loan amount, planned hold period and expected payoff date for each quote. Include upfront points, third-party fees, required reserves, ongoing interest, extensions and prepayment costs. Compare the security and guarantees requested, along with what happens if the opening date slips or the tenant stops paying.
Questions to ask before you commit
Can seller financing work for a farm sale?
It can be a structure to discuss when both parties agree on the collateral and the buyer’s ability to pay. Ask counsel and escrow to review title, lien priority, closing mechanics and any existing loan restrictions.
Does federal rescheduling improve financing automatically?
Lender eligibility is a separate decision. Ask whether the lender permits the particular activity and tenant, and whether its policy differs for medical and adult-use businesses. Use current written terms in underwriting.
Can a property investor rely on advertised cannabis rent?
Review rent actually collected, any concessions, lease term and guaranties. Estimate replacement rent, tenant improvements, downtime and repositioning costs if the current operator leaves.
Read the cannabis property due diligence checklist · Federal cannabis rescheduling and real estate · Talk with Diamond Real Estate Group
