The rapid expansion of AI across the U.S. is creating fresh demand for data center space. That trend is attracting attention to another industry facing a very different reality: cannabis cultivation.
As cannabis companies struggle with falling wholesale prices, excess production capacity, and changing consumer demand, some owners are considering whether idle or distressed grow facilities could be repurposed for data center operations.
Commercial real estate professionals say the concept has merit, as indoor marijuana sites already contain several features needed for technology operations. These can include sophisticated security measures, substantial electrical capacity, climate controls, industrial cooling systems, and insulation.
Ryan George, owner of Sacramento-based cannabis property marketplace 420 Property, said converting an existing facility can make financial sense when a building was designed for intensive, round-the-clock operations.
However, the two uses are far from interchangeable. Data centers generally require substantially more space and electricity than cannabis farms. Retrofitting a grow site can also require new fiber connections, additional power infrastructure, and, in some cases, zoning changes.
Size remains one of the largest obstacles. George said many cultivation buildings are no bigger than about 30,000 square feet, while data center developers typically seek much larger properties.
Electricity is another major hurdle. Niki Krear, VP of acquisitions at New Lake Capital Partners, a Connecticut-based real estate investment trust, said a typical data center can require over 10 megawatts of power. Cannabis cultivation sites often have between 3 and 5 megawatts, primarily to operate climate-control and lighting systems.
Krear said a conversion could take as long as five years when regulatory approvals and infrastructure improvements are included.
Location could ultimately determine which properties have the strongest prospects. Markets with favorable tax structures, relatively inexpensive electricity, and extensive fiber networks are more attractive. Virginia and Texas rank highly in Krear’s view, followed by Georgia, parts of the Midwest, Nevada, and the Rocky Mountain states.
Michigan is another promising market due to its relatively inexpensive electricity and the number of vacant or financially troubled cultivation properties.
Cannabis companies’ financial difficulties are helping create the opportunity. The resulting pressure has led some operators to close large farms or reduce the amount of space they use. In Colorado, PharmaCann and Green Dragon have announced closures of major cultivation sites in the Denver area after acquisitions.
Michigan’s Harbor Farmz is advertising its 32,850-square-foot property in Kalamazoo for potential data center development. Built in 2020, the facility has a megawatt of existing power, with expansion potential reaching 15 megawatts over time. The property is also zoned for data center use. If it sells, Harbor Farmz plans to continue cultivation at another location.
As more U.S. marijuana firms struggle amid growing competition and falling prices, they may need to get inspiration across the border from businesses like SNDL Inc. (NASDAQ: SNDL) that have weathered numerous challenges as the Canadian market matured.
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CNW420 spotlights the latest developments in the rapidly evolving cannabis industry through the release of an article each business day at 4:20 p.m. Eastern – a tribute to the time synonymous with cannabis culture. The concise, informative content serves as a gateway for investors interested in the legalized cannabis sector and provides updates on how regulatory developments may impact financial markets. If marijuana and the burgeoning industry surrounding it are on your radar, CNW420 is for you! Check back daily to stay up-to-date on the latest milestones in the fast -changing world of cannabis.
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