The recent legalization of cannabis in California—as well as other Western states—has created a wealth of new opportunities for investors, but it also comes with risks. Foremost, the industry is still federally illegal, making collecting rents and obtaining financing difficult. However, there are other unknowns, like regulations and licensing requirements. To find out more about this new frontier and everything potential investors and landlords of these tenants should know, we sat down with Joshua Schneiderman, a partner at Snell & Wilmer, for an exclusive interview.

GlobeSt.com: What types of real estate investment opportunities have emerged as a result of the legalization of cannabis?

Joshua Schneiderman: Medical marijuana has been legal in California since 1996. However, the state has gone 20 years without formal regulations governing its sale and distribution. On June 27, 2017, California enacted comprehensive regulations governing both medicinal and adult use cannabis. The regulations mandate that, starting in January 2016, the State begin issuing licenses allowing businesses to legally sell marijuana. The key to the real estate opportunity comes from the structure of the regulations governing licensing. To get a state-issued license, businesses must first find a local jurisdiction that allows them to operate. Cities have complete discretion to determine whether and how they will allow cannabis businesses to operate within their borders. When a new city announces that it will allow cannabis businesses within its borders, property prices (primarily commercial, but in some cases residential as well) can increase dramatically, as there is no shortage of cannabis businesses looking to lock in a lease and apply for a permit, which are prerequisites to obtaining a state license. Investors who have the foresight to buy properties in cities that are expected to allow the industry and who guess correctly stand to reap large rewards.