NUTS & BOLTS THE BIG PICTURE
STRATEGIES: REITs CANNABIS & REAL ESTATE
visit that if the federal government passed legislation approving recreational use on a national level. Until then, it’s far better simply to own a secure asset that is highly attractive in a booming industry and that can be leased out or sold to businesses in a variety of industries.” Greenzone and groups like it are working feverishly to establish a niche in cannabis-related real estate while the cannabis market itself is new and piping hot. “We seek out commercial, industrial, and retail properties as well as raw land to purchase, develop, and then sell or lease out to individuals already firmly ingrained in the cannabis industry,” explained Asmus. “We look specifically at properties that can be used for cultiva- tion, manufacturing, or dispensaries.” HANDLING DUE DILIGENCE IN AN EMERGING INDUSTRY As with any new market, real estate investors who wish to participate must take great care when evaluating the via- bility of a potential deal. The question is always: Will it attract and keep a can- nabis-growing tenant? According to the New York Times, “factories, warehouses, and self-storage facilities” are ideal for cultivating and processing the plants and creating various products, including pre- packaged medical marijuana in various dosages, recreational marijuana, and even edible products. It is not enough, however, simply to have a large space with room for grow lights or even plenty of sunlight; the warehouse or former storage space needs to have enough room to install import- ant equipment to monitor and prevent various types of potential contamination, including mold, fungus, and excessive pesticides, that either must come out in processing or never enter the growth environment in the first place. Now that the industry is legalized, to a degree, there are many regulations, checks, and balances to insure product quality that
simply did not exist when cannabis was an illegal substance. “Once we have identified a potential property and done our real estate due diligence on it, we carefully screen and analyze that property for sustainability, meaning that it will work for a company in the cannabis sector over the long term,” said Asmus. That screening means con- firming proper zoning, suitable ground conditions for cultivation, adequate supplies of water and electricity, and the potential for total climate control. “We take it one step further and talk to local officials as well to make sure that we are working with local municipalities and not against them,” he added. This last is particularly important since marijuana legislation, still new in most states, is often contradictory and con- fusing, leaving room for local officials to enforce as they deem appropriate rather than always by a set standard. For exam- ple, in California, the state’s 2015 Medical Cannabis Regulation and Safety Act (MCRSA) does not allow vertical integra- tion, which means that a company cannot have licenses to distribute, cultivate, and manufacture. State and local officials have been very plain about their intentions to keep “big operators” from entering the state and creating, as deputy director of the National Organization for the Reform of Marijuana Laws Paul Armentano described it to NYT, “a big tobacco-type situation in California.” While that may seem straightforward, it is not. California has another piece of cannabis legislation that directly con- tradicts MCRSA’s stated goals and some of the regulations laid out within it. The Adult Use of Marijuana Act (AUMA), passed in November 2016, does permit
8 THE NUMBER OF STATES THAT HAVE LEGALIZED MARIJUANA FOR RECREATIONAL AND MEDICAL USE. THE DISTRICT OF COLUMBIA HAS AS WELL. IN 2016, MORE THAN $12 BILLION WERE SPENT ON CANNABIS-RELATED PRODUCTS IN THOSE STATES. 12
Is Green the NewGold? GET THE FACTS ABOUT MARIJUANA AND REAL ESTATE.
THE NUMBER OF STATES PERMITTING MEDICAL MARIJUANA USE. 21
by Carole VanSickle Ellis
I
na grow-houses occupied 4.2 million square feet of industrial space by the end of 2016. That was 14 percent higher than in 2015 (3.7 million square feet). While these numbers are especially high because Colorado was one of the earliest states to legalize and has a highly permissive history and culture when it comes to weed, certain parts of the metro area are also ideally suited for can- nabis cultivation and processing due to zoning, location, climate, and available amenities and facilities. Also, when it comes to distribution, it certainly does not hurt to have a local population more than happy to purchase your product regularly and in large quantities. “According to a recent Gallup Poll, more than 33 million people regularly use cannabis in the United States today. That is a huge customer base for a new industry and means that there is equally huge potential in these early stages when cannabis cultivation and processing
vary state by state, and logistical issues that accompany attempting to use retire- ment funds to make the investment (cer- tain popular types of account won’t allow it at all), cause them to back away from the sector before they ever get involved. A NEWDEFINITION FOR “GREEN REAL ESTATE” “I simply will not invest in something unsanctioned by the federal government,” is a common explanation for why an investor has steered clear of private place- ments in the cannabis industry despite meteoric returns. Also, “My retirement account won’t allow it.” For investors who either cannot or will not invest directly in cannabis but find the exponential growth in the marijuana industry irresistibly attractive, there may be a solution: commercial real estate, and warehouse space specifically. In Denver, Colorado, alone, marijua-
t’s not news to anyone that medical and recreational marijuana in all its forms and functions is now big business in the United States. In May 2016, Forbes reported that retail sales of marijuana in the United States were $6.5 billion, then noted (as if the number seemed small), “but according to Green- wave Advisors, that number is projected to grow to $30 billion by 2021,” just four years from present day. Author and finan- cial journalist Debra Borchardt added, “More automation, more square footage, and the ability to manage this fast growth are separating the mom-and-pop shops from corporate cannabis.” Not surprisingly, the adventurous streak and desire for high returns that drives many investors to real estate also lures them toward the rapidly-expanding pot industry. However, for some, the long- time stigma associated with marijuana as an illegal drug, questions about legality and use, confusion about how those issues
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THE NUMBER OF STATES ACTIVELY PURSUING LEGISLATION PERMITTING RECREATIONAL MARIJUANA USE. has only recently become legal and, as a result, more industrialized,” said Pete Asmus, CEO of Greenzone Properties LLC, a fund dedicated to developing and managing commercial real estate that backs the cannabis industry. “At no time do we ever possess or distribute cannabis or cannabis-based products,” noted Asmus of the fund’s unique positioning. “We would only re-
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Carole VanSickle Ellis is the editor of Think Realty Magazine. She can be reached at cellis@thinkrealty.com
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