The cannabis industry seems to be riding a groundswell of support. At last count, 37 states had legalized medicinal cannabis use and 21 had legalized recreational use. However, the industry faces significant headwinds, including a lack of access to banking and an uneven and lengthy licensing and permitting process. These dynamics, veteran commercial brokers report, have resulted in the most complicated and protracted deals of their careers.
Green Rush for Properties
With state or municipal law changes can come a mad rush by prospective tenants. That’s because most states require prospective cannabis operators to obtain a business address before applying for licenses and permits based on type of operation—cultivation, retail, and so on.
After Oregon voters greenlighted recreational marijuana sales in 2017, “We were inundated with hundreds of calls,” says Zach Francis, executive vice president of Kidder Mathews in Portland. “Some building tours were 20 people deep. It was chaos.”
One property owner went on a buying spree from 2016 to 2020 and purchased vacant warehouses near the Portland airport. “We did 15 to 20 deals and had buildings in escrow at double market rent before sales even closed,” Francis says.
Stephen A. Madigan initially represented clients in the cannabis manufacturing, extraction, distribution and laboratory testing sectors. When Costa Mesa, Calif., passed an ordinance in 2021 legalizing cannabis sales and delivery, “we jumped in and began representing dispensary tenants and owners,” says Madigan, senior vice president of Kidder Mathews in nearby Irvine. “There was competition for spaces and lease rates were driven up … and the cannabis tenants kept coming.”
“If you’re looking to acquire real estate for a dispensary, there will be bidding wars,” says Jason Piazza, director of real estate with WeCann in Santa Ana, Calif. Cities generally limit the number of dispensaries they will license, and this is the most sought-after license to originate in cannabis. WeCann, a full-service cannabis consulting firm that handles entitlements and licensing, has brokered nearly 100 deals valued at $150 million in the last five-and-a-half years and recently merged with CREC, a firm that has nearly an equal number of transactions. “We got our deals [in Costa Mesa] done early and negotiated a 50% premium on leases,” Piazza says. “By the time the application period opened, tenants and buyers were paying 100-plus-percent premium.”
WeCann was hired as the exclusive leasing agent for an old Barstow, Calif., outlet mall, with 23 buildings, 350,000 square feet, parking and a food court. Piazza describes the vibe as a ghost town or a set from the TV series “The Walking Dead.” “We had a vision for our client: ‘Let’s create a cannabis-centric mall with cannabis dispensaries, hemp clothing retailers, head shops, a cannabis museum.’ ” Several letters of intent were fully executed, and WeCann was ready to do leases when a last-minute cannabis tenant leased the entire campus, says Piazza.
Another WeCann premier listing, PowerPlant Park in Richmond, Calif., is an 18.8-acre cannabis campus, vertically integrated from seed to sale for cultivators or retailers. The megasite is slated to open in early 2023. WeCann has signed 18 leases and sales, using tenant-investor and tenant-grower models. This hybrid indoor mixed-light greenhouse model represents the future, says Piazza, where high-quality cannabis—containing 25% to 35% THC—can be purchased through drive-thru windows, allowing growers to sell directly to the consumer and realize better margins.