Survey results and summary originally appeared on Apto Commercial Real Estate Blog on Nov. 20, 2018

A new survey from Apto - a commercial real estate software company - shows that, despite the challenges, the vast majority of commercial brokers who have completed cannabis-related real estate transactions would do more of them.

Results of the Apto poll were released last week, following voter approval earlier this month of measures in three states that would legalize the sale of some form of marijuana.

On November 6 - election day in the U.S. - voters in Michigan legalized marijuana for recreational use, and voters in Missouri and Utah legalized the use of medical marijuana. Now, 33 states and the District of Columbia have enabled the sale of some form of marijuana.

Broker Survey Results

Apto surveyed commercial real estate brokers in the states that allowed for the sale of some form of marijuana prior to the recent election. Those states included: Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Hawaii, Illinois, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Vermont, Washington (State), and West Virginia.

The poll asked commercial brokers about retail and industrial cannabis deals, and about sale and lease cannabis deals. Here’s what they said:

• Among the brokers who have already been involved in a cannabis real estate transaction, 85 percent said they would do another one, while 15% said they would not.
• Asked “How much more difficult is a cannabis deal than a conventional deal?” brokers on average said “8” on a scale of 1 to 10, with 1 being “less difficult” and 10 being “more difficult.”
• Asked “How well are supply and demand matching up for retail cannabis real estate space in your market?” brokers on average said “4” on a scale of 1 to 10, with 1 being “not in balance” and 10 being “in perfect balance.”
• Asked “How well are supply and demand matching up for industrial cannabis real estate space in your market?” brokers on average said “4” on a scale of 1 to 10, with 1 being “not in balance” and 10 being “in perfect balance.”
• Asked “How are cannabis deals pricing in your market (leases and sales)?” brokers responded this way:
  • 76 percent said above-market pricing
  • 21 percent said at-market pricing
  • 3 percent said below-market pricing

Commenting on the poll results, Tanner McGraw, founder of Apto, said, “The slow but steady legalization of marijuana across more states is beginning to have an impact on real estate markets as local jurisdictions grapple with zoning and other issues that affect the availability of sites, be they for cultivation and storage or for retail sales of cannabis. The survey results suggest that there is somewhat of a shortage of sites, likely because allowable zoning has not caught up with demand.”

“Another apparent issue is financing for businesses engaged in marijuana cultivation, distribution and sales," he says. "Conflicting laws at the federal and state levels portend a thicket of regulatory compliance issues for participants in this industry.”

Brian K. Coakley, SIOR, concurs. His firm, Donohoe Real Estate Services/CORFAC International, has represented two different cannabis retail tenants in Maryland, where medical marijuana can be sold on a regulated basis. In both cases, Donohoe was able to identify locations for the dispensaries, but there were minefields at every turn, including state regulations that kept changing while site identification and negotiations were under way.

Coakley says that nearly all REITs (real estate investment trusts), institutional owners, and anyone with institutional banking relationships refused to entertain the use, effectively eliminating 60-70 percent of all landlords from the market, since federal law criminalizes profiting from the sale of marijuana. “Consequently,” he said, “the remaining landlords in many cases charged a premium for their space.”