Cannabis Real Estate: Cultivating the Right Partner

Over the lifespan of retail-oriented industry in America, real estate has been a make or break factor in the success of many companies. The now legendary former president of McDonald’s Harry Sonneborn once famously told McDonald’s founder Ray Kroc that he wasn’t “in the burger business, but the real estate business.” The quality and strategy of your real estate is often a mark of your brand’s prestige and typically an indicator of its success. For the cannabis industry, finding and securing the best possible real estate (frequently with urgency and against fierce competition) is more challenging and more important than it is for most businesses.

Choosing a new location isn’t as simple as looking up a city’s zoning code and calling on high quality assets with great demographics, traffic counts, and curb appeal. Cannabis companies likely have to deal with sensitive use setback concerns, area licensing caps, steep local tax rates, and more. It all adds up to hours and hours of research, analysis, and getting to know each community that takes away from any busy entrepreneur’s already compressed schedule.

Finding the Right Location

Cannabis executives meet this challenge in a variety of ways. Many of the larger and more sophisticated MSO’s solve this problem through building dedicated real estate departments or hiring executives within the company who have extensive real estate backgrounds. Still others spin off real estate arms to create separate companies (or REITS such as Treehouse or GreenAcreage Real Estate Corp) for a number of reasons such as capital raising and having a dedicated acquisitions partner. But what if you don’t have endless millions of dollars to have an in-house team or your very own real estate development company?

Traditional industries have long known the benefit of having dedicated local real estate partners to keep them plugged into communities that they care about. The most sophisticated and largest commercial real estate owners and users in the world rely on high performing broker partners for deal flow opportunity, deal analysis, vendor referrals, political awareness, and other services. The largest cannabis companies do the same; they simply don’t have the time to be a similar expert in the zoning code and city council dynamics of Los Angeles, CA, or Seattle, WA, or Denver, CO. Bringing in someone connected to that scene can also help uncover opportunities that wouldn’t have been possible.

Bringing in a broker to help find a building isn’t some earth-shattering revelation. There are some strategies for doing it more effectively. Here are a few pointers for effectively managing your broker relationships to greatest effect:

• Plan Ahead and Call Early: Principals often find out that a jurisdiction is going to open in 90 days and start calling every broker in town. This doesn’t help. They’ve often already missed the best opportunities in the market. To prevent this, look at your growth plan and project six to 12 months out. Call a few brokers in those communities that makes sense for your expansion. Explain who you are, what makes you different, and what you’re looking for. Brokers usually only get paid if a deal gets done, so selling the strength of your credit and potential license application is important. Some will go further and pay a retainer to a broker to make sure that they get that person’s exclusive services and any properties they may uncover.

Regardless of how you go about it, make sure you maintain contact over time, so you’ll stay fresh in the broker’s mind.

• Educate Your Local Partner: In all likelihood, your local broker isn’t going to be a seasoned cannabis property expert. These deals are hard, and those of us who choose to exclusively focus on the industry are rare. Stay on top of any ordinance changes and share the details that affect your particular search. This will save you both from wasting time on properties that just don’t work.
• Educate Yourself: Work with your broker partner to study the area. Take that time to ask about any unique dynamics affecting the city/county. You may uncover information that leads to a spectacularly undervalued opportunity, such as a major apartment development in the area, or a new public rail system that’s in the works.  If you can, tour the market with several different brokers. You’ll learn more about your new market in an afternoon’s worth of driving around with an experienced broker, even if you are in your own cars and using Zoom in the age of COVID.

Remember, none of this is rocket science, but success doesn’t need to be complicated (the guy who came up with the Pet Rock made $15 million). These behaviors have been a tried and true path to success for real estate investors, business owners, and brokers since time immemorial. Implementing a few simple steps to relieve some of the pressure and decrease the time spend on your property searches will go a long way.