Image credit: Nicholas Eckhart

At a Realtors’ Event in Los Angeles, Stakeholders Prepare for the Next Round of Cannabis Retail Permits

Finding property for a cannabis business is tricky, and some landlords are taking advantage.

Jun 10, 2019 6:50AM EDT California

LA native, graduated from Columbia Journalism School after working in education for several years. Her work has also appeared in La Opinión, the Columbia Journalism Review, and La Prensa Gráfica.

How are cannabis business hopefuls preparing for the next batch of local approvals for retail cannabis sales? By figuring out how to navigate state and local policies amid a marked land grab.

At a conference hosted by the Beverly Hills/Greater Los Angeles Association of Realtors on Friday, cannabis business operators, ancillary services providers, government officials, and people looking to get in the industry gathered to discuss the top issues at the intersection of real estate and the cannabis industry. The event, co-sponsored by Eaze and Weedmaps, began with opening remarks from the companies.

“One of the big challenges for legal operators is competition from the illegal market,” said Elizabeth Ashford, senior director of corporate communications at Eaze.

“I think it’s very, very important that civic leaders like yourselves understand that distinction and are working towards policy and outcomes that support folks who spent the time and money to get their licenses, are following the law, and are paying their taxes,” she added.

The opening remarks were followed by individual presentations, in which Navid Brewster, an attorney at McAllister Garfield, P.C., walked attendees through the nuances of the next phase of priority licensing in Los Angeles.

The details

Brewster then devoted ample time to warning realtors and their potential clients about property setback restrictions. Cannabis retailers, he underscored, must be located 700 feet away from other cannabis shops, as well as schools, daycare centers, parks, libraries, drug rehabilitation centers, and permanent supportive housing. Additionally, the proposed cannabis shop must be located in specific zones within the city.

“It’s really important to do your homework on your property,” Brewster added, or else buyers can end up with a non-compliant and, therefore, worthless property.

In a subsequent panel, Aaron Leider, broker and owner at Keller Williams, highlighted the challenges of securing real estate for the cannabis industry.

In general, said Leider, “commercial property does not come up that often. Usually, it’s held by families. A lot of times it’s held by older people. And the reason it becomes important that it’s been held for a while is because you need to have properties that have no loans on them.”

“Do not lease a building unless you know it is owned free and clear,” he told attendees. “That’s the number one thing that I have learned that we all need to know. Because the bank can call a loan in a minute, and you’re simply out of luck,” Leider said. Existing tenants, said Leider, are another thing to be wary of, as buyers may be forced to pay them to vacate. And if the tenant has a successful, established business, doing so can be costly.

The future

Laider also cautioned fellow realtors to remain firm under pressure from clients. To drive home the point, he shared an anecdote: Recently, he said, a group of investors from New York came to Los Angeles in search of opportunity, and they called on him to secure a site for a future cannabis consumption lounge. According to Leider, they were ready “to drop between $30 and $50 million dollars in leases, in property in California.”

Together, they found a building that could serve as a future consumption lounge for $5 million. The investors, said Leider, thought it was “the greatest value in the world.” But Leider thought otherwise. The property was mold-infested, having been abandoned for about five years. Plus, it is located at the tail end of the city. If the investors fail to get a license, said Leider, “this building is really worth, probably, $1.5 million dollars.”

“As a real estate agent,” he continued, “you’re there to protect your clients’ interests. And you have to state exactly what your opinions are.” He did. The investors from New York, however, were undeterred. “It was interesting,” said Leider. Even after he warned them about the potential pitfalls, the investors said: “if we lose some money on this, it’s okay.”

Leider then shared another experience in Pasadena. There, a landlord whose property was located in a “great area” required those interested in leasing his property to make non-refundable deposits just to be considered. According to Leider, “something like ten people stood up and gave them money.” Nine of them lost out.

Realtors, in sum, are dealing with landlords taking advantage of sensitive use setbacks and zoning. “And, on the other hand, you have your client who is, like, ‘get me the property, get me the property, get me the property’—but you still have to be who you are,” Leider said.

One way to protect buyers is to make leases subject to the issuance of a cannabis retail temporary approval. This, however, is not always possible.

Leider also mentioned a legislative development that could have a significant impact for the states’ educators. Recently, he said, California lawmakers introduced a bill to buy housing for teachers that have long commutes. “So why is that of interest?” said Leider. Because someone in the cannabis industry could secure a property that meets the 700-foot rule as it exists, then, “all of a sudden,” the buyer may find that the building is no longer compliant. In conjunction with the National Association of Realtors, said Leider, he worked to have legislators take that into consideration, and “I was able to get that bill pulled back.”

Before wrapping up, the panelists offered closing remarks, and Josh Drayton, director of outreach and communication at the California Cannabis Industry Association, looked to 2020.

“With this presidential election happening,” said Drayton, “they’re all trying to broaden their base. Cannabis is still very sexy amongst these folks, whether you’re a Democrat or a Republican. This is no longer a partisan issue in any way, shape or form. So, I can’t say what the real timeline is going to be, because I anticipate there are still going to be a lot of hurdles, but I would still say within two years, that we’re going to see some movement at the federal level. I think sooner if we get a Democrat elected.”