Real Estate Issues in a Flourishing Cannabis Market: Q&A With Oregon Broker Zack Stratford

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By Tony C. Dreibus

A thriving medical marijuana industry and an emerging recreational cannabis market have created a real estate boom in Oregon as entrepreneurs seek space for cultivation sites, dispensaries and future retail stores.

Oregon established rules on medical marijuana businesses in 2013, in effect legitimizing what was previously an unregulated industry (dispensaries and grows existed, even though they were technically illegal). The number of cultivation sites alone has jumped almost threefold since 2012.

Voters in the state also legalized recreational marijuana by approving Measure 91 last November, and entrepreneurs are now seeking real estate for businesses in preparation for the industry’s emergence.

Zack Stratford, a broker at the Portland-based real estate firm Oregon Resource Group, has seen the boom firsthand, as he spends most of his time working with cannabis entrepreneurs to find locations for their businesses. He spoke with Marijuana Business Daily about the real estate situation in Oregon and issues businesses run into with finding space.

What challenges are cannabis entrepreneurs facing on the real estate front in Oregon?

The hardest part in getting a location right now is getting approval from each city. Each city is in the process of writing its own regulations that are above and beyond what the state approves.

Some are trying to write out dispensaries completely (and) regulations are going to be very strict. A lot of Portland metro cities are making it difficult to find a spot. They want you to be 1,000 feet from a park, 1,000 feet from residents – you see a big ‘protect the children’ aspect.

These regulations are going to be the biggest hurdles in the coming months.

What common mistakes do cannabis business owners tend to make?

People not coming in with enough money or having false expectations of what it takes to get into a prime location.

In this industry, you have to make the location work for you. If the area works, and you have a solid location, but it’s a little larger than you wanted or you have to split the space up and have a spot where you sell glass to make use of the location, that’s what you’re going to have to do.

When they come in expecting 1,000 square feet in a super high traffic area at a reasonable rate – it’s not going to happen. Sometimes they have too high of expectations or an unwillingness to work. In this industry you have to be mobile and fluid if you want to play.

How stiff is the competition for real estate right now in your market?

A lot of what drives lease rates is competition, and you’re competing with a lot of other people. You see a lot of times larger deposits or higher rent rates (for cannabis businesses), but it really comes down to the landlord and the tenants. If tenants are coming in with good financials, you don’t see the real high premiums because there’s less risk there.

Do a lot of landlords have moral objections to leasing space to a cannabis company?

You see the moral objection factor come into play sometimes, and many landlords think it may be an undesirable use like a liquor store or a smoke shop. They see it as an ugly building and it’s going to have the perceived seediness that comes with them.

So you have to get in and show them the type of (décor) you’re going to have. People are putting a lot of money into their retail locations so they’re becoming very high-class.

What’s the difference between writing a lease for a cannabis company and one for any other company?

Tenants want approval before they move into a space (to operate a cannabis company). They’re very open about it, and everyone needs to know what they’re getting into. The tenants, at least the ones I work with, are professionals.

Is it harder or easier to find a large space for cultivators than it is to find a small space for a retailer?

I see it as less difficult to find warehouse space. I would like it if more of my clients wanted a bigger warehouse space.

Landlords, especially with warehouses, are more willing to work with cultivation sites as long as they’re professional and are saying ‘we’re going to do it right.’ When you’re trying to get anything in downtown Portland, it’s going to be difficult to find.

Tony C. Dreibus can be reached at tonyd@mjbizmedia.com