The Real Deal New York

Troubles in the joint: Medical marijuana stores face legal hurdles

Sources say dispensaries eyeing Tribeca, transit hubs

By Adam Pincus | June 03, 2015 02:00PM

With a deadline looming Friday for companies to apply for a state license to sell medical marijuana in New York, potential tenants and their agents are scouring store space for suitable locations, insiders said. 

But getting landlords on board could be tricky.

One broker called it a “land rush,” because applicants need a lease or lease option — or place a $2 million bond — to be considered for the license, according to State Department of Health regulations. 

Eastern Consolidated’s James Famularo, who is representing dozens of retail availabilities, said firms calling him are focusing their attention on Tribeca and Midtown.

There’s been particular interest in 140 and 175 Franklin Street, 143 Chambers Street and 108 Reade Street, he said, as well as spaces near Grand Central Terminal and Penn Station.

The state can license up to five companies which can each operate up to four dispensaries. Locations cannot be on the same street or avenue and must be at least 1,000 feet away from a school or religious building.

Nabbing a landlord will be difficult, Famularo said, because the tenants want to have the lease or the lease option from the property owner to take to the state in order to apply for the license.

Yet many landlords would be reluctant to sign such an agreement with a tenant that may have trouble taking the space, Famularo said, and to add the uncertainty, one that has to have its license renewed every two years.

“They want an agreement to take to the state and say, ‘This is my space,’” said Famularo, who is advising his landlords to shy away from such deals.

The city, which has far less oversight over the process than the state, made a determination to place cannabis dispensaries in the same commercial use group as drug stores, bakeries, shoe stores and other retailers, known as 6a, insiders said.

A spokesperson for the Department of Buildings said, “The Department is still in the process of making a determination on use group.”

Land use attorney Mitchell Korbey, a partner at the law firm Herrick, Feinstein, believed the city made the right decision in placing the operations in a common use group, and not creating a new one.

“It’s no different from a drug store,” Korbey said. “Frankly you want them. You want these kinds of businesses in your neighborhood. There are always going to be people who object to something new.”

Tim King, a principal with CPEX Real Estate, expected the dispensaries to be a good fit for some landlords, but he would not recommend it for all.

“It is location dependent. I would not want to put them in a spot where it might impact the ability to lease adjacent or nearby locations,” he said.

A report last year from research firm Green Wave Advisors found that the U.S. medical marijuana industry would be worth $35 billion by 2020 if all 50 states were to legalize it.

Insiders identified four firms looking for space: Long Island-based based PalliaTech, Tilray, a Canadian company backed by the private equity firm Privateer Holdings; Aventura, Fla.-based Empire State Compassionate Care; and Staten Island-based Saint James Global. Sources said there were likely more, and that some firms were dropping out because they could not find locations.

Saint James Global, led by Scott Stein, has been looking for roughly 200,000 square feet in industrial space for a grow house, sources said. The firm looked at Liberty View Industrial Plaza and Industry City in Sunset Park, but is also considering Long Island City. Brokers who represent the two Sunset Park office complexes denied that they were in talks with the company.

Mark Maurer contributed reporting.