Managing risk is a critical strategy for all business owners. Careful risk management is crucial for cannabis business owners, even those with investors aplenty and deep pockets. Take California, for example. What started off as a certifiable green gold rush when voters passed Proposition 64 (the Adult Use of Marijuana Act) in 2016 turned sour as the industry figured things out.

Pre-legalization forecasts predicted explosive growth and aggressive consolidation. The businesses that managed risk well did alright. Those that assumed the industry presented no risk had a different hand to deal with. What was not considered were the legislative back-and-forth, permit delays, explosive infrastructure costs, and skyrocketing lease rates that meant a lot of businesses didn’t make it after a year or two of operation.

Minimize the risk of having your cannabis business go under due to a costly commercial real estate lease. To help you, here are three critical pieces of advice to consider when it is time to lease real estate for a cannabis business.

1. Overestimate timelines

Do not assume that the expected-by date of any license will happen when indicated. In fact, play it safe and overestimate the length of time everything will take. Just about every state that legalized adult-use marijuana faced some sort of delay in issuing licenses or permits. That said, if you’re aren’t submitting an application to a city with what’s called an ‘open licensing’ program, communicate as effectively as possible to get an opening date clarified.

The point is, you don’t want to spend all your cash on leasing real estate for a business that isn’t licensed to do business, much less generate revenue. Try to control the variable expense by negotiating “pre-opening” lease fees. Need to get a landlord to see the need for contract flexibility from your perspective? Thoughtfully walk them through your timeline. Describe a few opening date scenarios you’ve created contingency plans for. Think through and offer some lease structuring options to the agent. This can save time, money and avoid any significant conflicts.

If you can’t control expenses on the front end of a lease, try to negotiate a “kick out” clause. This would allow you to exit the property and lease in the case of significant licensing delays. You could also structure it so that any pre-opening rental delays associated with licensing or permitting delays would be tacked onto the end of the lease.

Finally, remember that the answer is “no” whenever you fail to ask the question. Ask for a lower rental rate before opening for business. All of these components can keep a lid on financial risk and protect you from the unknowns.

2. Know the metrics

Understand the variables that should affect your decision on whether to sign a lease or not. One metric involves rent-to-revenue. In a nutshell, this is the percent of annual revenue that goes to rent expenses — including any common-area maintenance fees and/or triple net charges.

All industries should research what their healthy rent-to-revenue range is. Generally speaking, the range is between 3% and 20%. It depends on the specific industry, of course. Understand the target rate is per sector and per real estate location.

Likewise, do your homework on projected revenues and anticipated personnel expenses. Know the local tax rates. As a general rule of thumb, rent-to-revenue shouldn’t be above 15%. Understand that most leases have annual rent increases built into the contract; review the entire agreement. Underestimate calculated revenue. Having revenue goals is excellent; propping up your whole business plan on overinflated calculations spells trouble down the road.

3. Say goodbye

Always remember you can walk away from a deal that just doesn’t work with your budget or business plan overall. Staying realistic is vital here, and solely because a contract is presented doesn’t mean you have to make one. Know when to walk away.

The relationship between a business owner and a landlord should benefit both parties. While making endless appointments to view countless properties, go into the process knowing that the search for leasable space that is compliant with the industry’s regulations, affordable, and functional is long and stressful. In the meantime, keep your cold hard cash in your pocket until the right situation presents itself.

To minimize a bunch of the hassle in the first place, make sure you communicate clearly with a commercial real estate agent or landlord. Suppose the non-negotiable specifics are acknowledged and identified at the start of the process. In that case, the rest of it will be more palatable. This smart approach to business builds a foundation that can be priceless when considering future expansion and growth.