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New York State took a huge step this month legalizing marijuana toking anywhere smoking is allowed. Naturally, the commercial real estate industry is jonesing for a cut of that action.
After all, the new legal pot industry will require growing, manufacturing, offices and retail space for sales as well as dedicated “consumption lounges.”
But bureaucracy, for the moment, stands in the way of investors.
Each aspect of the business will require a separate license for cultivation, processing, distribution and so on. The new law limits each license to just two years — a difficulty for those trying to sign a longer lease or get financing.
The upshot? Getting into New York’s new cannabis business requires Escobar-esque sums of cash.
“The industry is getting more sophisticated and more technologically advanced and [as facilities cost tens of millions] it is difficult to raise that much equity,” said Eric Michael Anton, a senior managing director with Marcus & Millichap who is marketing a large Massachusetts cultivation facility as a sale, lease-back opportunity.
Investors face other hurdles as well.
Since growing and selling marijuana is still a federal crime, most banks don’t want to take on the risk of lending to such businesses, insurance is pricier and most dispensaries still can’t take credit cards.
Nevertheless, the state estimates cannabis will become a $1.2 billion to $3.5 billion industry, creating over $350 million in new tax revenues, with a 40 percent cut of the taxes to benefit African and Latino communities that were disproportionately affected by its criminalization.
And those with space want in. Local restaurant owner, Dennis Riese, chairman and CEO of The Riese Organization, started investing in California cannabis companies several years ago. Now he’s focused on filling dormant restaurants with vibrant pot spots.
“Some locations will work and some won’t and we have to wait for the regulations,” Riese said. “I have a location in mind that would make a nice dispensary and consumption lounge.”
Real estate services to help folks like Riese are now blooming everywhere.
In March, NewLake Capital merged with GreenAcreage Real Estate Corp. The newly branded NewLake Capital purchases assets leased or owned by cannabis licensees and then leases them back to the operators. This frees up the growers’ capital, explained Anthony Coniglio, NewLake’s president, who is talking to New York operators that are now expanding.
“Real estate needs to build out capacity to meet the significant demand expected for cannabis products,” Coniglio said.
To that end, industrial shelving suppliers, McMurray Stern, is helping to double indoor cultivation areas with a vertical racking system (inset) that integrates with irrigation and lighting.
But the real winner of the new laws may be New York’s Indian nations and tribes, which will likely get the right to add weed growing and retail outlets to their casinos and reservations.
“I can see lines of cars going into the Shinnecock Nation,” Riese said.
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