Finding the ‘Green Zone’: How Specialty Realtors Are Cashing in on CannabisHayley FoxOctober 31, 2017
As California creeps closer to legalization, a commercial land grab has led to soaring lease and sale prices.
But while Maroney has appreciated the change of scenery, the lease rates are another story. Maroney has agreed to shell out $5,000 a month for a 10-acre plot—of which less than one acre is cannabis. If it weren’t for cannabis, he said, the property would typically rent for closer to $2,000.
“I was ready to just say, enough with cultivation, because it is getting very expensive,” said Maroney.
Maroney’s not alone. High rents, reluctant landlords, and a diminishing pool of available properties are just a few of the major real estate issues facing those in the cannabis industry today. As California creeps closer to legalization in January, entrepreneurs up and down the Golden State are clamoring to secure farmland, industrial warehouses, retail storefronts, and more—a land grab that has led to soaring lease and sale prices.
As a general rule of thumb, cannabis-friendly properties often lease for two to three times the amount that “traditional” businesses could rent them for. In Monterey County for example, a 10-acre plot of land that would have sold for $2.5 million last year, the New York Times reports, now goes for $5 million.
Coupled with complex regulatory requirements and municipal zoning restrictions on where cannabis businesses can operate, property-hunting can be daunting for industry newbies and veterans alike.
But where cannabis operators see obstacles, specialty real estate firms like Irvine-based 420 Real Properties smell opportunity. Founded just a year and a half ago, the firm is designed to be a one-stop-shop for legal cannabis business owners. The company curates real estate listings for industry-friendly properties, and it partners with outside experts to provide clients with financing options and advice on regulatory compliance.
“It really enables us to serve [clients] in a way a lot of other companies just aren’t set up for yet,” said Matthew Thompson, the company’s vice president of marketing and operations.
There’s already an array of directories intended to help cannabis consumers find green-friendly accommodations, from homes and apartments on Weed Rentals to vacation digs on Travel THC. Locating a legal spot to set up a business, however, is a lot more complicated.
To do it, 420 Real Properties first sniffs out what are sometimes referred to as cannabis “green zones”—areas where cannabis businesses are legally allowed to operate.
Defined differently in every California municipality, green zones can be determined by a number of factors, including local ordinances or zoning regulations as well as the state’s “sensitive-use” restrictions, which require marijuana shops set up at least 600 feet away from schools, churches, and other designated locations. 420 Real Properties scouts locations that check all the appropriate boxes, then employees vet the properties’ lease agreements and landlords. Questions include whether there’s enough power to supply the operation, whether there’s parking available, and how the landlord feels about renting to a cannabis tenant, Thompson said.
Even in the so-called green zones, some property owners are reluctant to rent to cannabis businesses because marijuana is still illegal at a federal level. Others, Thompson added, are confused about the legality business operations of cannabis businesses and worry they’ll cause irreparable damage to the space they’re renting.
“Almost every one of the license categories require that you have a property in order to apply for that license.”Aaron Herzberg, CalCann Holdings
“It’s a misconception of the industry,” he said, “and a misunderstanding of the type of entrepreneur now that’s looking for a space.”
In addition to finding a property and smoothing renter relations, 420 Real Properties also helps clients secure permits, stay in compliance, and even find funding—a crucial service for many businesses at a time when as loans for cannabis companies are still hard to come by.
CalCann Holdings, an Orange County-based brokerage and investment firm, also aims to offer clients a one-stop-shop solution to real estate woes. Built on the leadership team’s combined backgrounds in law, real estate, government relations, and cannabis, the company operates not only as a broker—the company has processed more than $28 million in cannabis real estate transactions, its website says—but also by buying up pot-friendly property itself.
Whether applying for a license to grow, process, transport, or sell cannabis, one of the first steps towards becoming a legal business in California is securing real estate, explained Aaron Herzberg, a CalCann partner and the company’s general counsel.
“Almost every one of the license categories require that you have a property in order to apply for that license,” he said. “It’s going to be black and white, and by the end of 2018 if you don’t have a state license, you’ll be back to committing a crime and you’ll be shut down.”
“It’s tough to make a long-term business decision without true clarity.”Jamie Warm, Henry's Original CEO
As California gears up for legal adult-use cannabis sales next year, every local jurisdiction in the state is crafting its own set of rules and zoning requirements. Many have yet to clearly define where exactly cannabis businesses can operate.
That makes for a lot of guesswork when it comes to choosing a commercial property, said Jamie Warm, co-founder and CEO of cannabis company Henry’s Original. And while it’s confusing, it’s also expensive. Rental rates are exponentially more expensive for cannabis businesses, Warm said, and landlords rarely offer short-term commercial leases; most are at least three to five years. That can be a big commitment for a would-be operator—especially considering that securing a commercial space is simply one step in acquiring a license and doesn’t guarantee approval.
“It’s tough to make a long-term business decision without true clarity,” Warm said. “You better hope you’re going to be able to do business there, for the long-term.”
Trying to tame that uncertainty has led CalCann to track regulations at the micro level, keeping close tabs on rules in about 20 different districts throughout Southern California, Herzberg said.
When CalCann identifies a promising property, the team tries to secure the necessary cannabis license to go with it. After all, the value of commercial real estate doubles or triples when it can be used for a legal cannabis business, said Herzberg. CalCann can then either keep the business for its own portfolio or sell it to an outside operator.
(Editor’s note: In recent weeks, as this story was being reported, Herzberg told Leafly that CalCann is no longer taking on new projects. Instead he and Lynwood City Councilmember Aide Castro are launching a new operation dubbed The Puzzle Group, a law firm that will focus on helping corporate investors obtain real estate and municipal licenses.)
While CalCann and 420 Real Properties are specific to Southern California, specialty cannabis realtors have sprouted up in many other states where marijuana is legal. Denver-based Commercial Marijuana Real Estate (CMRE), for example, now operates in California, Hawaii, Washington, and Oregon. Through a network of attorneys, consultants, financial planners, and even architects, it not only provides property listings but also touts fluency in zoning and regulatory requirements, logistical needs such as electrical power and security, and eco-conscious design options including solar power.
There’s also Pot Prop, an online marketplace of cannabis-friendly residential and commercial properties available in California, Colorado, and Oregon. The directory includes a wide range of sites to buy or lease, including recreational dispensaries, 40-acre farms, industrial warehouses, and even turnkey grow rooms.
Investing in the California industry from a real estate angle is a way to “guarantee yourself profitability,” Herzberg said. You can reap the benefits of a cannabis investment without ever touching the product or being susceptible to the industry’s many challenges, including legal risk and a highly competitive marketplace.
“At the end of the day, if you own a piece of cannabis real estate and you’ve acquired it at close-to-market [rate], even if that business were to fail … at the very minimum, you own a piece of property,” he said.