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Emerging Due Diligence Issue – Cannabis-related Facilities

By Joseph Berlin, PE
May 24th, 2019

The advent of medical and recreational cannabis dispensing and growing industries in many states render a somewhat unique focus on important issues in the due diligence process, including environmental due diligence (EDD). There are a number of environmental issues which are commonly overlooked that are often of increased importance when dealing with new cannabis operations. These issues can encompass a wide range of environmental topics including (but not limited to) standard EDD (i.e. Phase I ESA, etc.), air emissions, water management, setbacks/easements/rights-of-way, or other issues related to ordinances by local units of government. The rapid development and evolution of cannabis regulatory programs on the state or local level can significantly increase or diminish a property’s value. The specific environmental services needed to address these issues will depend on the particular operations conducted at the facility (growing, extraction, distribution, etc.).

In Michigan, many local units of government (LUGs) are struggling with the development and implementation of relevant regulations.  The regulations for zoning of dispensaries and grow facilities are still in development (as of May 2019). However, some of the most important considerations have to do with local issues, especially with regard to creating buffer zones around schools, residences, and churches. In some cases, the means for establishing a buffer zone prejudices locating cannabis operations toward rural areas, old industrial facilities, and older gas stations, many of which have significant environmental issues.

The standard EDD process starts with a Phase I Environmental Site Assessment (ESA) which may identify recognized environmental conditions (RECs). When considering an outdoor cannabis growing facility, non-scope considerations such as wetlands may be of greater value, and other issues such water withdrawal, water management, wastewater discharge, pesticide management, groundwater discharge, industrial pretreatment program (IPP), and grow facility air controls must be addressed.

Extraction facilities have their own family of issues including fire code compliance, chemical and waste compliance, and waste handling and disposal. In some larger operations, Process Safety Management (PSM) may even apply. The importance of understanding all the risks in extraction operations was duly impressed upon us in one recent incident. A client had a major fire incident related to a cannabis extraction process using butane as the extractant. The butane being used to extract the active ingredient was un-odorized, and the leak could not be detected until ignition. Luckily no one was injured, but substantive damage to the facility occurred.

Evaluating and understanding the specific environmental issues and regulations affecting various cannabis operations is an important step in the due diligence process and critical to maintaining the value of these properties. Use of industry best practices, including regulatory guidance from other states (e.g., California), has helped our clients to better understand the regulatory issues likely to affect their properties and to develop facility plans and designs, even before local guidance or rules are finalized.

 

Joseph Berlin, PE of BLDI is a licensed engineer in multiple states, certified professional (Ohio) and forensic engineer with expert witness cases throughout the United States. Please contact Mr. Berlin with any questions at (616) 459-3737.