The Buyer’s Due Diligence Checklist for a Cannabis Cultivation Facility
When you step into the process of buying an operating cultivation facility, you are not just underwriting real estate or equipment. You are stepping into a living system where a license, a team, and an ecosystem of compliance and infrastructure have been woven together over time. The most successful buyers understand that due diligence is not a box checking exercise. It is an opportunity to uncover the full story of the facility, the culture of the people who run it, and the hidden strengths and weaknesses that will shape your investment.
Think of it as following the roots of a plant underground. You need to trace where the stability comes from, what stress points exist, and how resilient the system really is. Licenses, property, utilities, biosecurity, financials, and people are all connected. If one piece fails, the entire operation suffers.
Licenses and Regulatory Posture
Every deal begins with the license. You want to know whether the state license is in good standing, if there’s an upcoming renewal, and if there are any violation notices or ongoing investigations that could disrupt the operation. Local ordinances matter just as much. Zoning clearance, conditional use permits, odor or nuisance restrictions, and certificates of occupancy all set the facility’s regulatory foundation. Make sure you understand any restrictions associated with the license, such as canopy or plant count limits, and if you can stack multiple licenses at the same facility.
Equally important is the transfer process. Some states require hearings, background checks, or surety bonds that can delay a deal. Ask for a clear map of how ownership and control will move from seller to buyer. Finally, confirm that the facility’s track and trace system is reconciled against the state’s database. METRC, BioTrack, and other platforms each have quirks, but all must align with reported plant and product counts.
Real Estate Condition and Compliance
Cultivation facilities are the most expensive build outs in the cannabis supply chain, so you want to make sure you invest correctly. Zoning letters need to confirm that cannabis use is compliant and will remain so after ownership changes. Pay attention to sensitive use buffers from schools or daycare centers and ask about any history of odor complaints. Title or lease documents deserve scrutiny too. Easements, restrictions, liens, and landlord consent provisions can create future headaches if overlooked. If the lease rate is significantly above market, ask for a detailed explanation why. If the owner already took their chips off the table through a sale-leaseback which is now reflected in an outsized lease rate, you have leverage to reduce your offer price.
Third-party reports are not just a formality; they contain critical information about the property value. For cultivation facilities, buyers should always request the following:
- Appraisal from a reputable firm, preferably using multiple valuation methodologies (income approach, sales comp approach, and replacement cost analysis)
- Property Condition Assessment: evaluates the physical condition of the property, its systems, and site improvements
- ALTA Survey: highly detailed land survey that shows exact property boundaries, easements, encroachments, improvements, and legal access
- Phase 1 ESA: evaluates whether a property shows evidence of potential environmental contamination like hazardous chemicals, fuel leaks, or prior industrial use that could pose liability or cleanup risks; if concerns are uncovered, order a Phase 2
Infrastructure and Utilities
If the lights go out, the grow stops - and so does your revenue. Reliable power, water, and climate control are the lifeblood of any cultivation operation. Review at least two years of utility bills to understand seasonal load fluctuations and spikes in demand. Study electrical one-line diagrams to identify single points of failure and confirm the facility can handle expansion. Request HVAC and dehumidification maintenance logs to verify that system capacity matches the plant load and that redundancy is in place for critical components.
Airflow should be clean, filtered, and directional between rooms to prevent contaminants from moving from propagation to flower. Irrigation systems should maintain stable control of pH and electrical conductivity (EC) with reliable backflow prevention to protect water sources. Drainage and wastewater systems must comply with environmental and local discharge requirements. Lighting systems should be efficient, properly zoned, and supported by any available utility rebate documentation. Finally, backup generators or battery systems with a defined load-shedding plan are no longer optional, they are essential for protecting your crop and your cash flow.
Biosecurity and Plant Health
When you buy a canopy, you’re buying its biosecurity program. A healthy genetic library and disciplined sanitation practices are what separate professional cultivation operations from hobby grows. Request recent pathogen testing, especially for Hop Latent Viroid (HLVd), powdery mildew, and other transmissible diseases. Review mother stock management records to confirm plants are rotated, tested, and quarantined before reintroduction. Facilities that use tissue culture propagation or maintain strict mother rotation schedules are far more resilient than those recycling old genetics without testing.
An effective Integrated Pest Management (IPM) program should be documented in logs and visible in practice. Verify that all crop protection products are state-approved, properly labeled, and rotated to avoid pest resistance. Applications should respect pre-harvest intervals and demonstrate operator training. When touring the facility, observe how people and tools move between rooms: Are scissors, trays, and carts segregated? Are hand-washing stations, sticky mats, and sanitation zones in place? These small details reveal a culture of discipline.
A clean facility is a healthy facility, and that translates directly to consistent yields, lower contamination risk, and higher buyer confidence.
Production Metrics
Numbers don’t lie, unless they’re averaged. Demand room-level performance data, not blended totals. Metrics like grams per square foot per harvest, turns per year, kilowatt-hours per pound, and labor hours per pound reveal the true efficiency of a cultivation system. Dig deeper into input costs, like substrate, nutrients, and water, since these determine whether margins are sustainable in a competitive market.
Quality control deserves the same scrutiny. Review first-pass Certificates of Analysis (COAs), retest frequency, and any history of microbial or Aspergillus failures. Ask how management responded and what preventive steps were implemented. Ratios of flower to trim, cull rates, and inventory write-offs show whether the operation consistently delivers what it claims.
Even rhythm matters. Compare planned flowering durations against actual outcomes, assess harvest timing, and review room reset intervals. A consistent cadence signals operational discipline—the difference between a scalable business and a reactive one.
Safety and Compliance
Regulators and insurers focus on the risks that can burn, leak, or injure. Fire suppression systems should be inspected, tagged, and fully operational. CO₂ enrichment systems require calibrated monitors, alarms, and emergency ventilation. Safety Data Sheets (SDS) must be current, chemicals labeled, and spill kits accessible.
Review OSHA logs, training records, and safety audits; they reveal whether safety is practiced or merely promised. Confirm property and liability insurance are in force, with adequate coverage limits for replacement cost, business interruption, and product liability.
In cannabis, compliance isn’t a department, it’s a culture. A facility that treats safety seriously protects more than workers; it also protects enterprise value.
People and Systems
An operation is only as strong as its people. Review the organizational chart and identify who holds critical knowledge. If one key employee leaves, does the system still function? Look for retention agreements, performance bonuses, and cross-training programs, as these are signs of a stable and resilient team.
Standard Operating Procedures (SOPs) should be version-controlled, accessible, and actually used. Every process, from propagation and pest management to curing and sanitation, requires consistency to maintain yield and quality.
Assess system governance: who can modify irrigation recipes, change lighting schedules, or access building management systems? Strong access controls and documented approvals separate disciplined scalable operations from those vulnerable to human error.
Financial Posture
Taxes are a fact of life, and in cannabis, they’re amplified by IRS Code Section 280E. Until federal rescheduling takes effect, confirm whether the state has decoupled from 280E and request tax clearance letters for every jurisdiction and category.
Inspect accounts payable, liens, vendor terms, deposits, and working capital levels. Evaluate whether cash flow supports current operations or relies on deferred expenses. Ensure all tax filings are current and consistent with reported financials, including sales and excise taxes.
Agree on a valuation method for inventory, whether that’s cost, market, or weighted average, to avoid last minute disputes. Transparency in these fundamentals builds confidence and protects both parties when diligence turns to documentation.
Contracts, Inventory, and Intellectual Property
Review white-label agreements, brand licenses, and supply contracts to ensure they are assignable, compliant, and free of change-of-control clauses that could terminate value upon sale.
Inventory verification is non-negotiable. Perform a physical count and reconcile it to the state tracking system (METRC or equivalent) on the same day. Identify what is quarantined, cleared for sale, or pending remediation. Clean data here prevents disputes and protects valuation integrity.
In cannabis, genetics can be considered intellectual property. Confirm documented ownership of strain names, clone sources, and tissue culture libraries. Lack of IP clarity can turn a prized genetic portfolio into a legal liability.
Deal Mechanics
How the transaction is structured carries distinct tax, regulatory, and licensing implications. Escrows and holdbacks should be tied to license transfers, tax clearance, and post-close performance benchmarks. Earn outs and bonus payments should be based on pre-agreed formulas, especially if EBITDA calculations are involved.
Representations and warranties must cover compliance, environmental conditions, intellectual property, and equipment condition. Pre-close covenants ensure the seller maintains crop health, staffing, and financial discipline through closing.
Plan for Day One integration before signing. Banking access, payroll, insurance, security credentials, and recipe governance must transition seamlessly. A clear authority matrix eliminates confusion and protects both operations and compliance.
Conclusion
A strong cultivation investment is one where paperwork, plants, and people all align. Clean licenses, compliant real estate, resilient infrastructure, disciplined biosecurity, and repeatable systems form the foundation.
Add contracts that hold value, financials that tell the truth, and a team that executes, and you have more than a license. You have a machine built to produce, adapt, and scale in an evolving market.
Interested in buying a cannabis cultivation facility? Search our listings or contact a PRO today.