Pubdate: Wed, 17 Feb 2021 Source: Wall Street Journal (US) Copyright: 2021 Dow Jones & Company, Inc. Contact: http://www.wsj.com/ Details: http://www.mapinc.org/media/487 Author: Peter Grant STATE CANNABIS APPROVALS EXPECTED TO SPARK BOOM Voters in four states last year approved the recreational use of marijuana. That is likely to launch a land rush there for warehouses and retail properties. Similar measures in other states have sparked heated competition for these types of real estate. Owners have been able to charge as much as three times market rates when selling or renting to businesses involved in the cultivation, distribution, processing or sale of cannabis, according to brokers, landlords and cannabis industry executives. Landlords can charge this pot premium because properties typically have to meet a range of local restrictions to qualify, such as being a certain distance from churches or schools. The owner of one sought-after Arizona retail location could have sold it for "a couple hundred thousand dollars" before the state's recreational ballot measure was approved in November, said Steve White, chief executive of Harvest Health & Recreation Inc., a multistate cannabis business that is involved in recreational- and medical-marijuana sales in Arizona. "They already have an offer for $2 million," he said. What's more, many property owners won't do business with companies selling cannabis because the federal government still classifies marijuana as a controlled substance, like cocaine or heroin. So for owners willing to lease to cannabis businesses, "it's like holding the winning lottery ticket," said Anthony Coniglio, chief executive of NewLake Capital Partners Inc., which owns 19 properties in eight states rented by cannabis businesses. "The retail properties can generate sales per square foot comparable to some of your top retail stores in the world," he said. The cannabis industry has grown from a curiosity in the commercial real-estate world to a major source of business in some markets. With 36 states and the District of Columbia now permitting medical or adult use, retail sales are expected to reach $23.4 billion by next year, according to NewLake. The number of states permitting recreational use for adults rose to 11, plus D.C., after November ballot measures passed in Arizona, New Jersey, Montana and South Dakota. Mississippi voters approved medical usage, which has been a first step toward adult use in other states. In Arizona, where recreational sales have already started, new cultivation and sale permits are up for grabs in eight counties. Applicants need to identify properties they plan to use, not an easy task given the numerous local restrictions on where stores, farms and other facilities can be located. "That's why I have a few more gray hairs on my head today than I did yesterday," said Luke Flood, who is in charge of real estate for Curaleaf Holdings, which has operations in 23 states and is seeking additional locations in Arizona. In New Jersey, it is expected to take months before sales start because the state and local governments have to complete regulations that will clarify the number and location of stores. But some companies that have been involved in that state's medical-cannabis business are expanding, partly in anticipation of soaring demand from the much larger adult-use market. Curaleaf, based in Massachusetts, agreed to buy its second New Jersey medical-marijuana dispensary on Route 130 in Bordentown last year. The price wasn't disclosed, but people familiar with the matter say it was about twice what it would have cost for normal use. "People know they can charge cannabis an absurd amount," said Patrik Jonsson, Curaleaf's regional president for the northeast. "It's the new norm." Even with demand growing, cannabis businesses run the risk of oversupply, especially in states like Colorado, Washington and Oregon where there are few restrictions on the number of permits. Some areas have seen values of real-estate prices soar, only to come crashing down to earth when a surplus of cannabis products has flooded their markets. Still, the U.S. House of Representatives in December passed a bill to legalize marijuana on a federal level. If the measure becomes law, a wide range of investors, lenders and real-estate companies are likely to jump in the business. NewLake estimates that another $15 billion worth of real estate will be needed to support the growth of the business over the next five years. "We're still seeing demand just at the very beginning for this industry," said Mr. Coniglio of NewLake.