Legal Cannabis And Commercial Real Estate: A Budding Industry
The US is in the middle of a major evolution in policy concerning cannabis. In an era of legal supply and demand for pot, where are the commercial property opportunities?
In twenty-one of the fifty states, marijuana legalization laws have passed. While federal law bans all sale and possession of cannabis, enforcement in states varies quite a bit. Washington and Colorado have repealed state laws prohibiting the recreational use of cannabis, choosing a regulatory regime that is contrary to federal statutes. The gap between the federal “war on drugs” and state’s rights has never been greater and only shows signs of widening.
A Dealmaker Steps Into The Breach
Addressing gaps in markets is what entrepreneurs do, and the legal cannabis business promises to attract many business visionaries, lured by what is surely a multi-billion dollar market. Serving that market means finding the space and doing the necessary property deals.
Catching a lot of attention for doing just that is one commercial real estate pro named Llorn Kylo, CEO of CannabisRx, a Scottsdale, AZ based real estate company who is snapping up millions worth of industrial properties in Illinois, California and Florida. Angela Gonzalez of the Phoenix Business Journal reports:
Cannabis-Rx Inc., a Scottsdale-based real estate company that is buying real estate for the medical marijuana industry, has paid $3.26 million for properties in California, Illinois and Florida.
The new publicly traded company just secured $30 million in financing to find real estate and financing for pot businesses.
Llorn Kylo, CEO of Cannabis-Rx (OTCQB:CANA), said he has been looking for properties in Arizona, but hasn’t found anything compelling yet.
“I certainly am looking and hope to get back to you with something in Arizona, but nothing just as of yet,” he said.
The real estate firm paid $1.26 million for a 209,000-square-foot building in Florida that will need another $1.8 million in upgrades.
Yes, he realizes he’s spending more on upgrades than on the building, he said.
He has contemplated buying vacant land and building from scratch, but the zoning permit process takes longer. For now, he’s looking at buildings he can rehabilitate.
Cannabis-Rx also just paid $2 million for four properties in San Francisco and Chicago.
The company already owns 37 properties in Florida, Illinois, California and Washington. Nine are ready for sale, four are under contract to be sold and 24 are being renovated.
Kylo said he’s interested in additional properties in California, Michigan, Washington and Colorado.
“I’m looking for distressed-type assets that need some sort of rehabilitation to improve the building,” he said. “We crystallize gains to improve our returns by finding diamonds in the rough.”
He said the company has achieved an average internal rate of return of about 32 percent per property.
Where Mr. Kylo leads, I’m sure many will follow. For all appearances, licensed marijuana distribution represents a property market sector with only growing demand for space devoted to its supply chain. While the federal vs. state enforcement picture remains murky, in the states that have determined their own marijuana rules, the farm, industrial, warehouse and retail sectors all stand to benefit greatly from the arrival of a legal cannabis industry.