Note: This is the second in a two-part column on real estate issues for existing MMJ businesses.
The hunt for MMJ dispensary and recreational retail real estate can be difficult, complex, and time consuming. It is more burdensome to find and pre-qualify property in the MMJ industry than in almost any other commercial industry, due to many restrictions imposed by both local and state governments.
Often, MMJ business owners state that “it took forever to find a building.” Business owners start out their search being picky about a location, but soon find out there is no way to be picky and must accept the locations that are offered. Be prepared for this possibility.
1. Pre-Qualifying a Location
After you have chosen a geographic area, be aware that both the state and local jurisdiction have current laws in effect which allow your business. This all comes down to one word: Zoning!
Go to the local Planning Department and understand the local land use laws (aka zoning) . Usually you will find only a few zones in which your business would be allowed. See where they exist on the zoning map, and narrow your search to these areas only. No other areas are even worth looking at.
Next, if the jurisdiction requires this, you must identify nearby ‘sensitive use locations’ and be certain distances away from them. These may include schools, churches, recovery or addiction centers, other dispensaries, public parks, etc. These sensitive use parameters often knock out good locations, so be prepared.
2. Pre- Qualifying a Property
Within the designated zones, find available properties and property types. This means engage a good commercial realtor, an MMJ consultant, or you can do it yourself. (Suggestion: utilize professionals whenever you can. Commercial realtors fees are generally paid by the property owner, not the tenant, and realtors often have a wealth of useful contacts in and background knowledge on the area.)
Once you have a list of properties available for rent or sale in the appropriate zones, the first thing to do is find a landlord who is willing to rent or sell to you.
3. Property Types to Choose From
Now look at property types you desire. Be aware that often what you have in mind may not be available so you may have to compromise. Often the most sought after property type for a dispensary is a small-scale stand-alone building with no common walls, its own parking lot, on a busy commercial street, with high visibility.
These properties are often very difficult to find, and rent for premium prices.
Possibilities for a retail dispensary include retail store fronts, a converted old home, former gas stations or office space, an office/warehouse or an upper floor unit in a high rise.
4. Landlord Negotiations
Once you have found a few good prospective properties, it is time to negotiate with the owner or manager. Your first question – not the last – should be ‘Do you rent to licensed marijuana businesses?”
It is imperative that you be up front and honest with the property manager or owner, and obtain permission to conduct your MMJ business in the property. If you find a perfect property, it looks great, the location is sweet, the size is perfect, the parking is good, and the price is right, it will all be for nothing if the landlord refuses to rent to your cannabis business.
Typically commercial properties will charge a premium to rent to this industry. Expect to pay between 20%-40% more per square foot for rent. This is considered justifiable, as the landlord is taking a large risk with you. The landlord’s worst case scenario is that the property is confiscated under Federal Drug Laws. (For example, the landlord for Harborside Health Center in Oakland CA has been given legal notice by the regional U.S. Attorney to evict Harborside or face asset forfeiture.)
Expect ‘NNN’ leases. This means you pay rent, utilities, taxes, insurance and maintenance. Also, it is not uncommon for landlords to require cash up front, and a few months pre-payment as well.
5. Construction Modification and Tenant Finish
Once you have found your property and negotiated your lease agreement, it is time to begin modification of your space. Plan to modify the property somehow and expect to do it immediately. Often, local MMJ ordinances include modification requirements. You may have to hire an architect, obtain blueprints, hire a licensed building contractor, complete and inspect the improvements. You will also need a Certificate of Occupancy and a Change of Use Permit.
6. Move In and Open For Business!
This is the most exciting part of it all. After going through all of this, you can now open your business. Laws vary all over the country as to when you may occupy in relation to obtaining a local MMJ business license, so know your local and state laws.
Note: This is the second in a two-part column on real estate issues for existing MMJ businesses. Click here for Part I which detailed the eight reasons existing MMJ businesses might need a new location.
Kerry Blasdel is a real estate investor, dispensary landlord and MMJ consultant who runs the firm Plant Medicines of Colorado LLC.