- Some landlords are charging a “green tax” on marijuana companies, under the impression that everyone in the marijuana industry is getting rich and has money to burn.
- “As cities begin welcoming dispensaries, it can be harder to find locations with the increased competition and few areas that are actually zoned for cannabis.”
- “It is important to find the right real estate partner who is willing to work with you. New businesses looking to rent a location will see higher expenses than pre-existing locations.”
Inflation has disrupted just about every industry at this point, including real estate. As difficult as it is for the average retailer to deal with increasing rent costs, cannabis dispensaries are facing a slightly more challenging scenario since it is not as easy to simply find a new storefront.
Green Tax on Marijuana Dispensaries
Between state regulations and zoning issues, there are multiple processes involved when looking to set up a brick-and-mortar dispensary location. On top of the checklist that needs to be followed, some landlords are charging a “green tax” on marijuana companies, according to MJBizDaily. Cannabis industry officials say these landlords are under the impression that everyone in the marijuana industry is getting rich and has money to burn, therefore charging a premium when leasing to these businesses.
In mature markets such as Colorado, for example, real estate prices have skyrocketed in the past few years. Meanwhile, wholesale cannabis prices have gone in the opposite direction, making it increasingly burdensome for dispensaries to pay rent.
Inflation Disrupting the Real Estate Industry
The reason why brick-and-mortar cannabis businesses are just starting to feel the impact on their rent costs is because real estate transactions take a long time and do not happen overnight, so we are just slowly starting to see the impact that inflation has on this industry, according to Jarrett Annenberg, Director of Acquisitions and Co-Founder of NewLake Capital Partners. Cap rates continue to increase as inflation increases, so we are seeing price hikes across the board.
“Finding locations has always been difficult, not only with each state having their own regulations, but also with setbacks from churches and schools,” Annenberg said. “On the other hand, while some non-cannabis retailers have struggled with finding reasonable rent over the last two years, landlords that were once opposed to marijuana have started becoming more open to it. Now, as cities begin welcoming dispensaries, it can be harder to find locations with the increased competition and few areas that are actually zoned for cannabis.”
Encompassing retail in its entirety, RCS Real Estate Advisors notes some new trends that are emerging in retail real estate as we continue to come out of the pandemic:
- Brick-and-mortar leasing is very strong, with both emerging brands and legacy brands, and now includes food/beverage and entertainment, which used to trail hard goods and apparel.
- Markets like Miami, where the traditional seasonality of the shopper evaporated during COVID, part-time residents became full-time. These types of cities, mostly in the sunbelt states, are now experiencing a softening of sales as consumers return to their “hometowns.”
- “Flight” cities like New York, which experienced dramatic negative population shifts, are back with new and returning residents. This is driving retail growth in markets like the upper east side, SoHo, NoHom, The Village, and Hudson Yards, among others.
- There is a mall tenant shuffle, where class C and class D malls without strong investment by ownership continue to lose tenants who are migrating to quality strip/power/open air centers. The net result has been increased sales, lower occupancy costs, and improved financial results.
- Conversely, traditional power center and fitness retailers continue to pursue mall environments, where the owners are investing and actively seeking redevelopment of their properties to satisfy both the consumer and the retailers’ criteria.
“There has always been a slight cannabis premium on properties because of zoning regulations, and landlords know that there are not many spots for these businesses, so it is important to find the right real estate partner who is willing to work with you,” Annenberg said. “New businesses looking to rent a location will see higher expenses than pre-existing locations.”