As if cannabis entrepreneurs didn’t have enough to contend with, now comes news that real estate owners in new markets are asking two to three times the market rate for properties in canna-friendly zones.
“After the great recession of 2008, real estate was completely different from what it is now, and sellers can virtually name their price at the moment,” said Jay Czarkowski, founder of Canna Advisors in Boulder, Colorado, and a longtime operator and consultant in the industry.
A report published in April by the National Association of Realtors revealed the increasing demand for cannabis commercial properties, as well as the existence of more companies with the resources to buy properties rather than lease them.
- In states where medical and recreational cannabis use is legal, 35 percent to 36 percent of real estate agents saw increased demand for warehouses, 23 percent for storefronts, and 18 percent to 28 percent for land.
- States where medical and recreational cannabis have been legalized in the past four years have seen the biggest increase in demand for commercial properties from cannabis-related businesses since the onset of COVID-19.
- Roughly 29 percent of commercial real estate agents in states that legalized recreational cannabis within the past four years reported an increase in property purchasing over leasing in the past year, compared to 21 percent in states where only medical marijuana is legal and 20 percent in states that legalized more than four years ago.
Czarkowski represents clients who are setting up shop on the East Coast, and he estimated the median cost for purchasing a cultivation space is $100 to $185 per square foot. At that price point, a building with 30,000 square feet of cultivation space would cost $3 million to $6 million, while a 100,000-square-foot space would be in the $10-million to $19-million range.
Most multistate operators look to expand into new East Coast markets as they open. Curaleaf told the Wall Street Journal it is building a 120,000-square-foot indoor cultivation facility and also plans to open a 500,000-square-foot outdoor operation in New Jersey. In an interview with Forbes last year, Curaleaf Chief Executive Officer Boris Jordan said, “In New Jersey, our goal is different. We’re looking to be the wholesaler. That’s why we’re building the big grow, so we can supply the whole market with product.”
Locking down real estate is critical, because in most states—including New York and New Jersey—a company needs to “control” a property (with a lease or similar contract) in order to obtain a cannabis license. “It’s a hot market everywhere, and real estate folks are having a really hard time showing they have control of the property, whether it’s a purchase agreement or a lease agreement,” said Czarkowski.
Since a majority of companies in the industry don’t have bank accounts, negotiating lease payments is yet another issue with which they must contend. The National Association of Realtors reported about one-third of landlords were unwilling to take cash for rent, and 8 percent to 15 percent will not take cash from an illegal federal activity for rent. Forty-four percent of landlords in states where medical cannabis is legal would take cash for rent, and 40 percent to 45 percent of those where marijuana is legal for both medical and recreational use would take cash for rent.
So what are some tips and strategies for finding commercial properties in red-hot real estate markets?
- Search for multiple locations at once, and go door to door in approved zones to meet owners.
- Partner with local property owners and offer all-cash deals, equity in the company, or other incentives.
- Target communities that are supportive of the cannabis industry, and meet with local officials and politicians.
“I’ve offered people money to vacate or move their business out of the space,” said Czarkowski. “You know, sometimes you just have to be really creative in order to get control of a property.”
As companies scour street maps in cannabis-approved zones on the East Coast and compete for a limited number of warehouses and retail storefronts, getting “really creative” could be the difference between becoming a licensed operator and sitting on the sidelines.
