There is huge demand to fund cannabis deals, but lenders arefocused on protecting against the downside. Cannabis-use assetsreceive significant rental premiums, but a lot of the rent boost isbecause cannabis remains illegal at the federal level. To protectagainst the higher risk, lenders are underwriting cannabis realestate as standard-use and with standard market rents.

"Lenders are seeing that Cannabis deals are great cash-flowingassets when leased on the upside, but there is a lot of risk on thedownside in the case that the government shuts down the use.Lenders are looking at the property's real estate attributes andunderwriting the property without the premium rents for cannabisuse," Gary Mozer a principal andco-founder at George Smith Partners,tells GlobeSt.com. "The lenders know that in theworst-case scenario, they have to kick the tenant out and lease itup to a non-cannabis user. So, lenders are stressing theirunderwriting to their downside scenario, not only for NOI but alsofor the cost to re-tenant, the carry costs and any capitalexpenditures. Excess cashflow can be used to amortize the loan orcreate reserves for re-tenanting."