Marijuana tenants are being forced into a bidding war for storefront premises. In fact, one dispensary on Los Angeles’ Westside is paying more for premises than it would cost to rent a luxury boutique on Rodeo Drive!
The dispensary’s monthly rental price-tag of $35,000 equates to about $87 a square foot, and there is no indication that landlords will be easing up on their financial demands when it comes to floor space for cannabis industry players in California.
One Los Angeles dispensary owner, who has been active in the cannabis industry since 2005, says landlords automatically increase their rental price-tags the moment they hear the word “marijuana”.
He says the shortage of real estate has forced some marijuana retailers into sharing their profits with their landlords. The demand for real estate and the shortage of supply has led to the present situation, he continues, where industry players are paying at least $6,500 every month to rent small shops in dubious neighborhoods.
West Hollywood cannabis lounges
Meanwhile, West Hollywood is gearing up to open cannabis lounges. City officials recently announced their intention to issue 16 licenses for such operations.
The city’s business development manager, Jackie Rocco, points out that present laws forbid cannabis consumption in public, while many apartment landlords have also put a blanket ban on smoking grass on their premises.
Rocco points out that the area needs safe places where cannabis can be consumed responsibly and smoking lounges will solve this problem.
Needless to say, this development has seen an immediate increase in rental prices for storefronts that can be used for cannabis lounges.
Well-known cannabis entrepreneur and rapper, B-Real (Louis Freese), recently concluded a rental deal for an old warehouse in downtown LA that is being used to cultivate marijuana and in still on the lookout for more commercial real estate space.
Freese says obtaining space in old warehouses and industrial buildings is a “luxury” to industry players because it is so difficult to find available space from which to operate. He says “people in the know” usually grab available space before other entrepreneurs even have a chance to put in an offer.
Another marijuana entrepreneur describes the property hunt as “a huge pain”. He says “business used to be fun” but nowadays it was becoming increasingly difficult to find pot-friendly landlords offering retail space with unrestricted zoning.
Marijuana operators must be professional
But one landlord dismisses “fun” from the equation, pointing out that marijuana operators have to learn to become professional business people. She says it takes “a real person” to sign a lease but not everyone displays the necessary executive skills to “step into the light”.
As a major cannabis industry landlord, she concedes that growers and processors “are good tenants” and “low-maintenance people” who simply want to get on with their business “without a lot of drama”.
Real estate prices versus marijuana operators
A perfect example of real estate prices versus marijuana operators is the city of Lynwood. Its cannabis tax rate of 10.25% is lower than other cities in LA County and has proven to be a magnet to attract industry players to the area. According to an attorney who specializes in cannabis licenses and real estate purchases for manufacturers and growers, prices have shot up from $120 a square foot to more than $300 a square foot since 2016.
He describes this trend as “land-banking” and predicts a continued upward spiral in the cost of real estate prices for the marijuana industry.
(Lynwood’s tax rate of 10.25% includes state, county, special and city council taxes. California’s state tax is 6%, LA County tax is 0.25%, special tax is 3% and Lynwood tax is 1%).
The federal government is the catalyst for exorbitant rental costs
Perhaps the catalyst for exorbitant rental demands is the fact that the federal government still regards cannabis as a dangerous drug, in the same category as heroin and LSD. This has discouraged the banking fraternity from doing business with marijuana-related entrepreneurs and is making it more challenging to rent or buy property. It has also precluded well-established developers and landlords from entering into business with marijuana entrepreneurs.
Marijuana’s uncertain future and outlaw history contribute to the availability of business space. Apart from rules that prevent retail outlets from operating near churches or schools, landlords and upscale shopping center owners have also put up barriers by refusing to rent space to pot business people. Many have admitted that they are afraid to be associated with an industry that deals in a substance that is still illegal in terms of federal government laws.
Optimists, on the other hand, believe that with time the pendulum will swing in favour of legalized marijuana which, with time, will become as socially acceptable as alcohol.