The Orange Report – 2019 Q1

The Orange Report – 2019 Q1

The “Cannabis Craze”

How the legalization of marijuana and help are affecting Retail and Commercial Real Estate
LEASE RATE - $13.00
VACANCY - 5.3%

RETAIL

LEASE RATE - $19.74
VACANCY - 6.5%

OFFICE

LEASE RATE - $4.32
VACANCY - 6.1%

INDUSTRIAL

CBD, THC, marijuana, hemp, cannabis, medical marijuana -– What is the difference? And how will they each affect retail consumer shopping going forward? The legalization of marijuana in various forms is spreading across the United States, this we know. Since 2014 and the legalization of cannabis in Colorado, 33 states have legalized cannabis for medical use and another ten states plus the District of Columbia have followed suit by legalizing it for recreational use as well. However, it remains illegal to buy, sell or distribute cannabis on a federal level. December 2018 marked another “marijuana milestone,” when legislation passed the Agriculture Improvement Act, legalizing hemp nationwide.
Cannabidiol, better known as CBD, is the non-psychoactive ingredient found in cannabis plants. CBD has recently been found to have analgesic, anti-inflammatory and anti-anxiety properties, without any psychoactive side effects. Tetrahydrocannabinol, or THC on the other hand, is the psychoactive ingredient which gives users an altered state of mind when ingested or inhaled into the body. Both hemp and marijuana are part of the cannabis family, however hemp is derived from a completely different species of plant and offers almost no THC. The uses of hemp are numerous, and none of them involve getting you high. At last count, hemp was known to have over 25,000 possible applications ranging from automobile and construction to dietary supplements and skin products.
So, while the uses of each of these products, and the laws which govern their use vary state to state, one thing is certain: these products are, and will continue to, create astronomical sales revenue that is hard to match by traditional merchandise. Wall Street has estimated that the cannabis industry will generate $50 to $75 billion in sales by the end of the next decade.
CBD is the simpler of the products on the market for the time being; as long as it is derived from hemp, it is legal to sell in all 50 states. But CBD isn’t just popping up in dedicated brick-and-mortar stores, we’re seeing it in many other uses. Lotions, creams, drinks, snacks, cosmetics, and massage oils are just a few of the products being infused with CBD. Domestic consumer interest in all products containing CBD is estimated at roughly 40% of adults age 21 and over, according to the Cannabis Times. Consumers previously unaware of CBD are rapidly developing interest in its vowed help to relieve symptoms associated with seizures, anxiety, pain, depression, sleeplessness and countless additional conditions. It’s important to note that while supporters believe CBD may be the answer to so many ailments, there still is fairly little evidence to support its remedial claim.
Simon Property Group, the largest mall owner in the country, announced in February that they’ll be partnering with a marijuana company based in Ohio to open 108 locations within their malls to sell CBD products, calling this a “cutting-edge new concept.” Pharmacy giants Walgreens and CVS have both stated they will begin selling CBD products including creams, patches and sprays, in a combined 2,300+ stores across the United States within the year. The demand for CBD infused products is so high, landlords who previously would not have given a serious thought to these enigmatic tenants in their shopping centers are now forced to rethink their position.
In 2018, Missouri approved the distribution and regulation of marijuana for medical use, putting us, like so many others, in the midst of navigating the logistics of creating a brand-new industry. Although Missouri’s Sunflower State neighbor remains committed only to the non-THC form of cannabis (CBD), Missouri will issue 192 medical marijuana dispensary licenses by 2020, 60 licenses for cultivation & another 86 for facilities making marijuana-infused products. Missouri’s initial “draft rules” for these uses set varying zoning requirements. Cultivation will be considered agriculture and non-urban, both infused products and medical testing will be considered manufacturing, and dispensaries will follow the same regulations as pharmacies. All will be responsible for following the “buffer rule” and must remain 1,000 feet away from churches, day cares or schools. Suppliers are on the search for traditional brick-and-mortar stores. As a commercial real estate broker, if you’ve not already been contacted by a dispenser inquiring about availability, it’s coming.
Missouri estimates it will receive 10 times the number of applications to distribute marijuana than licenses available. One stipulation of the process requires applicants to have their real estate for their proposed location under control prior to submitting for a license. One can see how this could quickly cause a spectacle of sorts, leaving droves of landlords and property owners holding spaces for a tenant that may have to walk away from their lease if they are unable to procure a license.
Regardless of solidifying a location and its specific use, perhaps the biggest challenge is between state and federal law. While many states have approved the use and sale of marijuana for various purposes, it remains federally illegal. As the real estate industry begins to open its mind to these non-traditional uses, the banking and insurance industries are not as willing or able to assume the risk. Funding for these facilities is extremely difficult, and federally insured banks are prohibited from dealing with proceeds from controlled substances. Landlords could run into similar issues with their own financing and insurance policies by allowing these uses in their properties.
Changes in consumer behavior have always been the driving force behind upheaval in the retail world, and this latest movement is no exception. The uniqueness of a growing industry that is technically illegal, at least on a federal level, however, leaves us with more questions than answers. Is this a fad that will ultimately be brought down federal regulation and potentially outlawed? Or could CBD & marijuana be the key, internet-proof products that landlords are so desperately searching for to bring more foot traffic into our shopping centers? One thing we know for sure is that the “Cannabis Craze“ is broadening consumer choice and disrupting the real estate world, and that is not something to cough at.