The Challenges Of Cannabis Real Estate
Recreational marijuana is currently legal in 18 states and Washington, D.C., and has passed through a ballot measure in South Dakota—although a lawsuit has so far prevented it from going into effect. According to 2020 U.S. Census Bureau apportionment numbers, more than 145 million Americans now live in a state that has legalized marijuana. This all adds up to a rising interest in cannabis real estate, particularly in retail. One of the most important decisions facing recreational cannabis businesses is where to set up shop.
The Challenges of Cannabis Real Estate
It’s estimated that cannabis businesses will contribute $130 billion to the U.S. economy by 2024, yet finding and securing real estate is one of the largest hurdles facing cannabis companies. One of the primary challenges to finding cannabis-friendly real estate is regulations—federally, on the state level, and locally.
Federal
While the number of states with legalized cannabis continues to grow, it remains illegal federally, which makes opening a recreational cannabis dispensary more challenging than other types of retail operations. One of the most notable problems created by this is that it builds a barrier to funding. Most dispensaries struggle to find a bank willing to lend them money, which means they’ll need to find investors or have a large amount of capital available to them.
Because leasing is often less costly in the short term, this pushes many dispensaries down this path, even if it’s not always the best long-term business solution.
State
If the license doesn’t come through, it’s a huge loss—particularly for those who have signed a lease. Those who own a piece of property at least have potential to rent it to another business or to try and flip the property.
Local
Even after a recreational cannabis dispensary overcomes the federal and state-level real estate challenges, it also must ensure it conforms to local regulations, guidelines, and restrictions, which vary from community to community. There are 351 municipalities in Massachusetts (where Lowkey Dispensary operates), each with its own codes and regulations. In Massachusetts, municipalities can control the number of licenses it awards, the zones where they can operate, and in some cases even restrict dispensaries altogether.
Because of the strict number of licenses awarded, limitations placed on where a dispensary can operate, and the need to have secured a location to attain a license, there are limited location options to place dispensaries. This may push even those wanting to buy a space into leasing due to the lack of inventory.
Additional Real Estate Challenges Facing Cannabis Dispensaries
In addition to federal, state, and local regulatory challenges, there are a host of other issues commonly encountered by those trying to establish a retail cannabis location.
Wary Landlords and Sellers
For some landlords and sellers, there is a stigma around cannabis, which makes securing a location even more difficult. For operations looking to lease, some landlords are simply unwilling to rent to cannabis dispensaries, while others like large shopping centers with well-known national chains have tenants with clauses preventing them from renting to businesses like cannabis dispensaries. Even when a landlord is willing to rent to a dispensary, it’s not uncommon that they will pay a higher-than-market rent.
Operations looking to purchase property can also run into people with a reluctance to do business with a cannabis company. While most sellers will be excited to unload a property, there’s a chance of running into one with strong feelings about cannabis or their community who is willing to hold out for another buyer.
High Demand and Low Supply
The cannabis business is booming around the country—and in Massachusetts, where recreational marijuana sales in Massachusetts recently surpassed $2 billion. Big business and a limited number of locations that comply with state and local locations have led to a tight real estate market. There is simply more demand for cannabis dispensary real estate than available inventory.
The imbalance between supply and demand forces up-and-coming dispensaries to make a difficult decision: wait for just the right space or settle for good enough? Or, perhaps it pushes a willing property buyer to settle for a lease.
Why Buy
Every business is different, but at Lowkey, we believe in owning our location. This is why we bought and are in the process of fully renovating our Codman Square, Dorchester, location—the former home of a restaurant. We see owning the property we operate on offering our business several advantages
The most notable of those advantages is that, since there’s a tight supply of locations that meet all the regulations and codes required of a dispensary, even if things don’t work out for your cannabis dispensary, you’re well-positioned to serve as a landlord. If your business (or one you rent to) is a success, it can stimulate economic development, attract other businesses, and increase the value of your property.
Buying property is also a hedge that the increasingly liberal thinking about cannabis continues. If for some reason your dispensary becomes legally unfeasible, your dispensary’s property remains an asset and can be converted to home another type of business.
About Lowkey Dispensary
Another reason for purchasing our location in Dorchester’s Codman Square is that it shows we’re buying into the community. As one of only a few Black-owned dispensaries in Massachusetts, we’re committed to the neighborhood we operate in. We’re excited to bring a Black-owned business to a neighborhood where over 40% of the residents are Black, creating good jobs, and putting our employees on a path to success in the cannabis industry—an industry that has left minorities behind, nearly 75% of the Massachusetts marijuana workforce is white.
