Among the many ripple effects of cannabis legalization is its effect on a jurisdiction’s landscape.
In some instances, it’s how cannabis tax revenue is put to use, such as in Colorado where dollars went toward school construction. In others, it’s how the industry takes shape as business owners set up shop, filling commercial and other real estate. Just this month, the Aurora Paramount Theatre in Illinois announced that Verano, an Illinois cannabis business, would be funding its plans for an immersive performance venue.
The intersection of cannabis and real estate was the focus of a panel discussion on Thursday morning during the Cannabis Real Estate Summit, part of the Mannada Event Summit Series. The panelists included regulators from New York and New Jersey, where cannabis was just legalized for adult use, and Connecticut, where lawmakers are advancing an adult use proposal put forth by Gov. Ned Lamont.
Each regulator spoke about the opportunities and challenges posed by their local laws and landscapes, but a recurring sentiment was that the neighboring states must continue to collaborate on cannabis. In 2019, New York Gov. Cuomo called for a “regional approach” to adult use cannabis legalization, as Cannabis Wire reported at the time, and hosted a cannabis summit with officials from neighboring states.
Edmund Deveaux, the executive director of the NJ CannaBusiness Association and panel moderator, spoke about how people will often make the drive from one of these states to another for a sporting event or a concert, and the same is expected when it comes to cannabis.
“People are not afraid to spend a little bit more for an opportunity to enjoy New York, Connecticut or Pennsylvania. So we have, in fact, a regional economy. And so as you watch how the industry grows in the northeast, our regional economy, dare I say, will help take care of itself,” Deveaux said.
A tipping point of sorts occurred in the region after Massachusetts voters passed a ballot measure to legalize cannabis for adult use in 2016. Once the state’s industry was up and running, the residents of a half dozen surrounding states were a short drive from a legal cannabis shop.
Once that happened, said Julianne Avallone, the legal director of Connecticut’s Department of Consumer Protection, residents in her state felt like “it’s been recreationalized in Connecticut,” adding, “from where I sit right now I can be in Massachusetts in half an hour. It’s shorter than most people’s commutes.”
While adult use legislation is still working its way through the Connecticut legislature, Avallone noted one significant change from how the state approached the medical program: those hoping to obtain a business license will not be expected to have secured a property up front.
“Then you have negotiating power with landlords,” Avallone said. “You’re no longer begging to just put a hold on a property that you may or may not occupy down the road. We saw landlords pulling people over a barrel and some people that were applicants then losing a significant amount of money, impacting their ability to apply down the road because they blew their funds on securing commercial properties.”
Dianna Houenou, the chair of New Jersey’s newly formed Cannabis Regulatory Commission, noted the “friendly rivalry” between “the two states across the Hudson River,” New Jersey and New York, but emphasized that each state has “unique” considerations. New Jersey, for example, is the most densely populated state in the country.
“I would be remiss if I didn’t speak to the unique situation of property values and property taxes in New Jersey,” Houenou added, referencing the fact that both are among the highest in the US. “There is wide variation among our municipalities in the tax rates that are applied, which can have a significant impact in people’s ability to set up shop in different communities across the state.”
One looming reality for both New Jersey and New York is local bans. Local control, or the ability for a jurisdiction to opt out of some aspect of cannabis activity, like sales, is often an important bargaining tool during legalization negotiations. But in California, for example, such bans have been cited as one reason for the endurance of the illegal market. Houenou emphasized the need for stakeholders to “hold each other accountable when it comes to setting up a responsible industry and working with communities and municipal officials so that they understand that the sky is not going to be falling anytime soon.”
Axel Bernabe, the assistant counsel for health to Gov. Andrew Cuomo, echoed this point, saying that he’s “hoping that a lot of people will see the wisdom of regulating and taxing cannabis rather than trying to prohibit it and continuing a failed policy.”
New York City and upstate New York are, in many ways, worlds apart. In the latter is where much of the cultivation is expected to take place, for example, as has been the case already with hemp. The state, Bernabe said, is “a lot more diverse and complex” than even he realized before he began working in state government.
In addition to that, one big factor in how the cannabis adult use industry unfolds in the state comes down to the licensing structure, which is similar to the state’s alcohol model. In short, with limited exceptions, those who cultivate cannabis cannot sell it, and cannot have a direct or indirect interest in any retailer. This is not just relevant for aspiring business owners, but also for investors.
“The reason that’s important from a real estate perspective, in my view, is you just have to be careful if you’re offering real estate services or you’re actually investing through a real estate trust of some sort, and you’re trying to provide investment opportunities to various players in the market, you do have to be careful that you’re not owning parts of or having an indirect interest in various players up and down the supply chain,” he said.
Zooming out, Bernabe returned to the point that the states need to “align our priorities and align our standards” and that “it’s going to be a team effort.”
As Houenou closed, she said, “I think as our states continue to work together, we will see this region evolve as a cohesive powerhouse in the country.”
