Commercial Investment Real Estate Winter 2020 | Page 24
Modern cannabis retail outlets are well-lit and open, aiming for a more comfortable, inviting environment.
It’s essential to be
well-versed in both state
and municipal laws and
ordinances governing the
business, because they
are the primary tools for
regulating where and how
the businesses can operate.
who are leasing is whether the landlord
holds a mortgage on the property, because
most mortgages bar federally illegal activ-
ity on the property, which would encom-
pass cannabis sales. And then there are the
neighbors. In any building, says Brandt, it’s
necessary to examine what lease controls
co-tenants have. If the property is part of
a shopping center, it’s necessary to check
the covenants, conditions, and restrictions
document to make sure a dispensary isn’t
expressly prohibited. He adds that even if
cannabis isn’t mentioned specifically, busi-
nesses may run into resistance from anchor
tenants in the center.
“Once you apply all those filters
to properties, it’s challenging to find a
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COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE
compliant piece of real estate,” Brandt says.
Berger says that she owns a building in Sil-
ver Spring, Md., that’s leased to a dispen-
sary; when she initially started looking at
locations there more than three years ago,
“there were three choices in the entire town.”
This can lead to competition for available
locations, and Berger says she’s seen many
examples of bidding wars and escalated ask-
ing prices for rents.
Because of the changing nature of
cannabis laws, standard commercial lease
agreements may not be adequate to address
specific risks related to cannabis business.
Lease provisions that may need to be added
include permitted use and compliance with
local and state laws, specific financial issues,
and even physical aspects of the business such
as signage and ventilation. It’s an area where
Mann strongly urges working with an attor-
ney experienced in the cannabis industry.
Because FDIC-insured institutions
can’t lend to cannabis-related businesses, fi-
nancing tends to be through private sources
and can come at premium rates — possibly
8 to 12 percent or more, says Brandt. This
could change, though, with the passage of
the Secure and Fair Enforcement (SAFE)
Banking Act, a bill that would protect banks
and financial institutions that deal with le-
gal cannabis businesses while also allowing
deposits from the businesses. (Cannabis
advocates also argue that it will improve the
safety and convenience for what now func-
tions as an all-cash business.) The bill passed
the House in September and is awaiting con-
sideration in the Senate.
“If that gets passed, a lot of these in-
stitutions can decide legally to step into the
space, although it doesn’t mean they’re going
to,” Brandt says. “I think they have to make a
strategic decision at the corporate level, and
for large banks, it could take a while. But a
lot of smaller, mid-tier banks may see this
as an opportunity to increase market share
and revenue. So I would expect them to step
in, but even that process could take three to
six months before that impact is felt in the
marketplace.”
As the industry continues to change
and move forward, commercial real estate
professionals who get experience within it
can play a role in sharing their knowledge.
“We are all learning,” says Mann. “If you have
education in this field, the best way to help
municipalities is to share that education. If
we want to make this industry strong and
good, we help with the education.”
“This is a business where there are
great opportunities for changing the land-
scape and conversation, and destigmatizing
something that has long been stigmatized,”
says Berger. “And whether you are a consum-
er or a supporter, it’s here. We now have the
opportunity to tax and regulate something
that has been untaxed and unregulated. A lot
of people say this is terrible — but it’s already
happening, so let’s create a safe environ-
ment for companies who hold licenses that
are responsible and are offering responsible
adult use.”
Sarah Hoban
Business writer in the Chicago area
WINTER 2020