Pubdate: Wed, 17 Feb 2021
Source: Wall Street Journal (US)
Copyright: 2021 Dow Jones & Company, Inc.
Author: Peter Grant


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

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.