By Larry Eliason
The State of Maine has passed legislation for both medical marijuana and recreational marijuana. A multitude of rules and regulations such as licensing of retail shops, cultivation, manufacturing, processing and warehousing have been passed.
Although medical marijuana is fairly well-established, the implementation of recreational “adult-use” in Maine has taken a very long time to come to fruition. There are many business owners, real estate investors and individuals on the sidelines still waiting for adult-use legislation to actually kick-in.
In addition to Maine state laws, many local towns have adopted or are in the process of adopting guidelines on where these facilities can be located. Many towns like Windham, have engaged a board of volunteers to look at zoning and regulations to help develop ordinances for the community. Maine towns have an opportunity to review and consider “opting-in” to capture the economic development force this industry has to offer such as: good paying jobs with benefits, commercial real estate tax base, business equipment tax base and some potential tax on the sale of the end product.
At the federal level, marijuana remains a Schedule I controlled substance so transactions involving marijuana activities could violate federal anti-money laundering statues. Nonetheless, the marijuana industry is growing exponentially, and people are lining up to get into the business and/or invest in it.
How does the marijuana industry affect commercial real estate? The marijuana industry needs commercial real estate to grow, cultivate, warehouse, manufacture, process, extract and sell a variety of products. Many of these commercial building occupancies are, in essence, indoor marijuana farms. So, the “pot guys” are actually farmers in addition to being entrepreneurs.
In states, cities and towns where cultivation and the manufacturing and processing of cannabis is legal, the marijuana industry has caused a spike in commercial real estate leasing activity, leasing rates and also commercial property values. Many retail spaces have already been converted to medical cannabis stores and warehouses and industrial properties are being repurposed for cannabis cultivation.
Now, since marijuana can’t be transported across state lines due to federal law, it must be sold and consumed in the state that it was cultivated. Just as specialty beer breweries have helped revitalize some of the older commercial and industrial districts, so has the marijuana industry.
Unfortunately, Maine has lost a substantial amount of manufacturing jobs of the past several decades. The traditional manufacturing jobs are now being replaced with jobs like marijuana retail, cultivation and manufacturing jobs. It appears that some of those jobs are very good paying jobs and, in many cases, with health and dental plans.
In many states like Maine, property owners who are considering transacting business with the marijuana industry need to plan for the conflict between state and federal laws. Banks with federal charters and that are also regulated and insured by federal agencies, can’t do business with marijuana business owners. However, more and more state-chartered banks in states that have legalized marijuana for medical or recreational use, are willing to work with the marijuana industry and its commercial landlords. And, there are also credit unions that offer deposit relationships.
Where banks are unwilling to lend money to cannabis industry operators, owner financing and other private lenders are a source of loans for commercial real estate transactions. Landlords that are fortunate enough to own their properties outright can lease space to marijuana businesses without the risk of having a commercial lender call their loan due to federal banking laws that may apply.
Commercial warehouse and industrial leasing rates that were traditionally $5 to $6 per square foot for many years in the Greater Portland market have approached $10 per square foot. In some cases, a turn-key facility may fetch up to twice this amount as it saves time and money for those looking to set up an operation for cultivation and they do not have to make an expensive fit-up and/or make leasehold improvements out-of-pocket.
Just like when you engage a commercial real estate professional to locate commercial space for lease or a commercial property to invest in, you should also engage your accountant, real estate attorney and banker to seek advice and guidance on making a decision to participate in this fast-evolving industry.
Larry Eliason is a Commercial Broker® with Butts Commercial Brokers® in Raymond, Maine and serves the Greater Sebago Lakes Region.