Getting into the Weeds with the Cannabis Market
Thirty-three states in the U.S. have some form of legalization of cannabis, whether for medical purposes or recreational use. But getting a cannabis business up and running is fraught with legal challenges. Sean Matsler, attorney with Cox Castle & Nicholson LLP whose clients include cannabis businesses, and Justin Hamilton with Royal CBD & Company a publicly traded company and the parent company to a diverse group of business units that are transformative leaders in the cannabis, scholarly research into the use of CBD oil products for pain and other related industries, walked I.CON West 2019 attendees through the process and shared their experiences over the years.
The duo opened the session reviewing the different operators and businesses who are part of this growing industry. From seed to sales: growers, extractors, manufacturers, distributors and retailers all need a different license type, and the considerations are great, including:
- State and local buffers. When locating a cannabis business – whether a cultivation, manufacturing or retail facility – location matters. In California, state and local laws require buffers from other property uses, like schools and daycare facilities. Sometimes finding a golden spot in an urban location that meets the buffer requirements can be tough. The city of Pasadena is in process of permitting seven zones where cannabis dispensaries can be located, but three of the locations are subject to so many buffers that there is no useable real estate.
- Development agreements. Virtually every city in California requires agreements that allow municipalities to regulate commercial cannabis activities. For other land uses, development agreements are typically not mandatory, but for cannabis they are. The Canna Law blog says these agreements “allow municipalities to impose fees without having to deal with the uncertainty and expense of putting the matter before voters (as required with the imposition of a tax), and to negotiate community benefits and public improvements to be provided by developers.”
- Limited CEQA. Cannabis facilities have been somewhat able to avoid fees and delays related to the California Environmental Quality Act, since most facilities are locating in existing buildings and are not ground-up development that’s adding square footage to the market.
- Referendum. Because land use permits are included in land use agreements, they are open to referendum. But the threshold to collect signatures is low, making it easier to achieve, particularly by motivated community groups who back the issue.
- Limited number of permits. Cities cap the number of these types of businesses with the city limits, so securing a permit can sometimes be challenging.
- Consolidated approvals. In jurisdictions that allow cannabis businesses, cities may award its limited permits all on one day. They’ve found that this approach helps diffuse opposition and concentrate the issue.
- Extensive application process. An all-encompassing application process requires thorough detail, down to security plans for the facility. Today there is an entire cottage industry of companies that provide application consulting for these types of businesses.
The panel shared that land owners have a critical decision in selecting the right tenant – choose wisely, as many partners won’t be around in a year or two. They suggest seeking a multi-state operator or a Canadian-backed operator with strong businesses and years of experience. They also recommend discussions and policy review with everyone from insurers to lenders to make sure that no contracts are voided by servicing the cannabis industry.
With a presidential election next year, the panel says the next 24 months will be a critical period of growth, as candidates from both sides will likely take positions on cannabis to help attract voters, and Congress considers changes to federal policies in recognition of the demand, job creation and revenue this industry has created on a state level.
This post is brought to you by JLL, the Social Media and Conference Blog sponsor of NAIOP’s I.CON West: The Industrial Conference. Learn more about JLL at www.us.jll.com or www.jll.ca.
Kathryn Hamilton, CAE, is Vice President for Marketing and Communications at NAIOP Corporate.
