US Attorney General Jeff Sessions has gotten to work on clarifying the US Department of Justice’s posture on legal marijuana. The move couldn’t come sooner for the commercial real estate industry supporting this growing sector of the economy.
During his confirmation hearing yesterday on Capitol Hill, prospective US Attorney General Jeff Sessions sent an ambiguous message to the real estate developers, property owners and lenders working to expand legal marijuana business in states that allow it. Pressed by Sen. Patrick Leahy (D-VT) on the topic of enforcement of federal law prohibiting marijuana in those states, Sessions responded with a bit of safe boilerplate before pointing to Congress
Despite the fact that it remains a federally illegal Schedule 1 drug, 2015 is the year that legal marijuana sales hit $1 billion. While still a far cry from its elder, comparable national markets — wine and spirits ($123 billion wholesale + retail), tobacco ($43 billion), brand-name pharmaceutical manufacturing ($149 billion) — the legal market in weed grew at a rate of 184% year over year in 2015.
Centered in the states of Colorado, Washington, Oregon, Alaska, and Washington, DC, where recreational cannabis has been legalized, the market is even wider than the above thanks to the legalization of medical use of pot in 23 states and Washington DC.
That adds up to a lot of commerce, which needs a lot of space for custom and secure retail, warehousing and growing operations. As always, meeting those space needs are commercial property professionals who make it their business to serve business.
How are today’s legal-marijuana property brokers and other professionals branding themselves and conducting that commerce? Without any implication of endorsement or preference, let’s take a quick look at a search sampling of the industry:
Avalon Realty Advisors
http://www.avalonrealtyadvisors.co/ – Winning the SEO sweepstakes today by coming in on top for the natural Google search results for “marijuana commercial real estate” is Colorado-based Avison Realty Advisors. With a website reminiscent of a traditional RE / professional services firm, they make a pitch for competency in a new commercial marketplace, including MMJ/RMJ consulting, which concerns itself with Colorado medical (M) marijuana operators transitioning to retail (R) operations.
Commercial Marijuana Realty (CMR)
http://www.commercialmarijuanarealty.com/ – Cast in contemporary web layout, this web pitch promises a mix of property and professional skills including turnkey properties, assistance with licenses, and investment opportunities. Seems also to be a network play, expanding presence in the emerging business niche by running or possibly franchising multiple websites, as at least one other high-ranking site carries the CMR imprint.
http://420mls.com/ – Using a sharp presentation one might call “the NORAD command center of the legal marijuana property market,” listings concerning all aspects of the business from growing to logistics to retailing are included. Also on show: properties in states where legalization is limited to medical prescription.
More Undoubtedly To Come
While these three basic presentation styles form a decent, if rough snapshot of today’s web pitches, expect the rush to profit from this emerging market to grow in intensity, eventually encompassing evergreen concepts in real estate from REITs to franchising and everything in between.
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.
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.