Paltry Pot Parcels
3:38 pm
Tue March 12, 2013

Scarce Real Estate For New Marijuana Stores

A new state law says you can have a licensed retail store for recreational marijuana, but it can’t be located within 1,000 feet of many facilities: schools, parks, transit centers, arcades, or libraries. In Seattle, that 1,000-foot rule means most of the city is off-limits. Smaller cities may have no eligible sites.

Greta Carter, an advocate for marijuana legalization, said applicants can't find a space to lease. “We have cannabis people who are, you know, raising their hand and wanting to come out of the shadows,” said Carter. She said marijuana businesses expect to pay a premium in rent; they know landlords are taking a risk since marijuana is still illegal under federal law.

But she said she knows of one landlord who is charging a retailer $50,000 in cash in addition to the terms of the lease. Carter said the new tenant doesn’t want to go public, but the case highlights the roadblocks they’re facing to become retailers. In order to obtain a retail license, the applicant must have leased a location. You can’t operate on the sidewalk or out of your car.

More Room For Legal Marijuana Stores

Some state legislators are concerned that the 1,000-foot rule could doom the state-licensed stores to failure. If there aren’t enough of them, or if they’re tucked into industrial neighborhoods far from people, then they won’t be able to compete as well against someone who’s under the radar, operating outside of the law.

Rep. Christopher Hurst, D-Enumclaw, wants to amend Initiative 502 this year. That would take a two-thirds vote in the Legislature. He hopes to cut the 1,000-foot rule to a 500-foot rule, opening up more real estate to the marijuana stores. But it’s unclear whether landlords will jump on board.

In Seattle, commercial real estate brokers say the land rush for marijuana businesses has already come and gone. For some landlords, the price was right to lease to a medical marijuana dispensary. One Seattle broker said his client was having trouble leasing a space last year. But a marijuana business agreed to pay market rate for what the broker called a B-minus location.

Scott Soules is an agent and landlord in Seattle. He said as medical marijuana dispensaries began sprouting around Seattle over the past two years, his phone kept ringing. Often the proposals sounded vague. “They would say, 'oh, it’s a medical use, it’s a service business.' They would come up with euphemisms," he said. "Finally after I’d had a few of those calls I would just say, ‘are you talking about a medical marijuana dispensary?’ And they’d go, ‘yes, well, that’s what it is.’”

Soules said he and the landlords he represented weren’t comfortable with the idea of leasing to dispensaries. For one thing, the law seemed unclear. And he said the dispensaries didn’t seem like a good mix with other retail. It wasn’t the kind of place where people would window-shop and drop in.

Ellen Mohl is a commercial real estate broker with Yates, Wood and MacDonald, Inc., in Seattle. She said she used to get three calls a day for medical marijuana dispensaries. Some of the landlords she represents consulted lawyers and insurance companies but ultimately declined those offers, “because of the security issue,” Mohl said. “Because when you have a tenant saying ‘yes I will have a guard there at all times,’ that’s an indication that they expect trouble, and most landlords do not want to be in a situation where there’s that kind of trouble.”

She added that, in general, landlords didn’t view dispensaries as legitimate businesses. “Most people who are in leasing know that there just cannot be that many people with medical conditions,” she said.

No More Medical Marijuana Dispensaries

Mohl speculated that I-502 might bring sanity to the situation, or at least more clarity under state law. And some landlords may feel more comfortable hosting the new state-licensed stores. But the landlords for medical marijuana dispensaries could face problems. Some dispensary owners in the right locations could apply for retail licenses.

Rep. Hurst said if they don’t get that license, they have no legal protection. “Once the state starts issuing certificates for the legal sale of marijuana, I think the feds probably will crack down on – and I think the state may consider cracking down on – anybody that’s operating outside of a certificate,” said Hurst.

Hurst predicts even tolerant cities like Seattle will want to go after dispensaries for tax evasion once they’re competing with state-licensed stores. But relaxing the 1,000-foot rule to allow more state-licensed stores may not reassure landlords or tenants. Violating the 1,000-foot rule still means a stiffer sentence under federal law. Last year the Drug Enforcement Agency sent letters to 23 dispensaries in violation of that rule, telling the businesses and their landlords to cease operations or face prosecution.