Inside the Northeast Cannabis Real Estate Boom

This article by Nadja Sayej was originally published on Leverage.com and is being republished with permission.

On March 31, New York Governor Andrew Cuomo announced that the state would legalize medical and adult-use cannabis in the coming year. According to Cuomo, it’ll create over $350 million in revenue, and at least 30,000 jobs.

“This is a historic day in New York, one that rights the wrongs of the past by putting an end to harsh prison sentences,” Governor Cuomo said in a statement. “It embraces an industry that will grow the Empire State’s economy and prioritizes marginalized communities so those that have suffered the most will be the first to reap the benefits.”

New York is just one of 17 states across the country legalizing cannabis. In the coming months, marijuana plant-related businesses are going to be popping up all over the east coast, now that New York, New Jersey, Maine and Massachusetts have legalized cannabis, among other states with limited capacity (like Pennsylvania).

A cannabis real estate boom is likely to follow. The global legal cannabis industry is predicted to hit $40.6 billion in global spending by 2024, which will be a 300% increase from 2019, according to a report from Arcview Market Research & BDS Analytics.

But what exactly does this mean for commercial cannabis real estate?

The industry consensus is that it’s tough to get a cannabis business going; whether it’s getting a license or getting a location. Though the dispensary boom is all over, it will likely flock to touristic towns like Great Barrington, MA, known as a skiing town, which now has five cannabis dispensaries in a town of 7,000.

With cannabis coming to the states of New Jersey and New York, the market is expected to grow for adult-use cannabis starting this year in NJ, and on April 1, 2022 in New York.

“There is a lot of demand and not a lot of supply,” Brian Lauray from MMLG consultants recently said. “It will come down to the operators that have the money and can tweak many levers.”

Just look at Pennsylvania, a medical-only cannabis state (it isn’t legal for non-medical, recreational adult-use). Even still, they’ve seen their medical cannabis sales grow from $40 million in January 2020 to $98 million in January 2021, according to a report from Headset. Is this a sign of the cannabis real estate boom to come for other states?

“The short answer is yes,” said Akiva Gottlieb, a commercial broker at Lev Capital in New York City. “We will see top brands fit in nicely for trendy areas in New York City, Jersey Shore and Hoboken, and be picked up quickly by hippie-type areas. Just nowhere near private schools and corporate industries.”

Gottlieb explained that the country’s cannabis experts are well aware of the market oversaturation in the west and Midwest, from California to Colorado. Cannabis businesses will likely move to, or expand in, the east coast.

“Experts predict that your common shops like 7/11 and the likes will carry some sort of medical or recreational cannabis products,” Gottlieb said.

Cannabis financing is a key step to securing a property to address the hot cannabis real estate world. Gottlieb drew a parallel between the black market to the legalization of products over time. Take the prohibition era, where the 18th amendment banned the sale of alcohol, and now in 2021, where the sale of alcoholic drinks has already turned over $254,564 million, according to a report from Statistica, and is expected to grow roughly 6% before 2025.

The cannabis industry could see the same turnover, eventually. Cannabis real estate isn’t just dispensary retail, but where the product is grown, harvested, stored, sold, and consumed, all within state lines. Commercial real estate is in demand, not only for storefronts but warehouses and other types of related land.

“Previously determined ‘safe’ and ‘secure’ asset classes, like retail and multifamily are now considered volatile,” Gottlieb said. “We have seen a major shift in large institutional investment corps who were forced to pivot their core businesses toward alternative products.”

Could it be pandemic-proof? He explained that medical-use cannabis has been deemed an essential business during the pandemic in many states.

“With the likes of Target, Walmart, Burger King, and Starbucks closed, your local dispensary has been open servicing the community and racking up their revenue,” Gottlieb said. “And to our landlords, most importantly, they are paying their rent.”

To say the industry is growing is an understatement.

“As a commercial financing advisory firm, we come across numerous transactions that include some form of a cannabis element to it,” he claimed. “Ranging from a minority tenant in a strip mall to a triple net (NNN) lease on an industrial cultivation facility, cannabis is everywhere right now.”

Real estate firms like Lev are “approaching these deals just like we would any standard commercial asset,” Gottlieb said.

The future of cannabis in commercial real estate comes down to financing.

“As the industry develops more, more states will pass the Safe Banking Acts, which means that state-authorized marijuana businesses will have easier access to banking services,” Gottlieb said.

Gottlieb predicted that, by spring of 2022, many mainstream corporate and national banks will be on board with financing, “and will allocate significant capital under their balance sheet to this particular market.”

Here’s one step forward: Many real estate firms are adding a Cannabis Real Estate Division, like Lev has, to their websites. Just look at James Capital Advisors, which recently started a new Cannabis Real Estate Division in Los Angeles. With this sort of example, many other real estate companies who specialize in commercial real estate are likely to follow.

“The industry follows the cash flow, and the cash flow is overwhelmingly available in the cannabis industry,” Gottlieb said. “Especially in debt with firms like Lev, the people need assistance financing these unique properties and the brokers of our new modern world will fill that void.”

 

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The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


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