Risky business: Marijuana dispensaries present high risk, high reward for landlords, panelists say
Commercial brokers are creating niche practices focusing on cannabis retail spaces
Landlords who rake in rents from medical marijuana dispensaries may put their commercial bank accounts and title insurance at risk, according to cannabis real estate experts. Meanwhile, cannabis retailers are baking early termination clauses into leases in the event municipalities deny permits to open dispensaries.
Dan Dietz, manager of real estate acquisitions for GrowHealthy, a Florida medical marijuana company founded in 2014, said his firm retained SRS Realty Advisors, a commercial brokerage based in Orlando, to handle all of its real estate deals in Florida. The SRS brokers are well-versed on state regulations on dispensaries, as well as at convincing landlords to accept the risks associated with leasing to a retail cannabis shop, Dietz said.
“We have pretty tight lease clauses we include,” Dietz said. “There are termination provisions based on the inability to achieve government requirements to operate, and line items that acknowledge [selling marijuana products] is against federal law.”
Dietz, whose company operates three dispensaries in Florida, was a panelist for an Urban Land Institute discussion on cannabis real estate in Fort Lauderdale on Thursday. He joined Matt Ginder, senior counsel with law firm Greenspoon Marder’s cannabis practice; Nick Hansen, Southeast U.S. government affairs director for MedMen, a national cannabis company based in Culver, City, California that is currently suing Miami Beach over its dispensary restrictions; and Tara Tedrow, a shareholder at Lowndes, Drosdick, Doster, Kantor & Reed who chairs the firm’s cannabis & controlled substances group.
Leasing to dispensaries is a risky proposition because banks and major insurance companies do not want to do business with anyone tied to the cannabis industry since marijuana is still a federally banned illicit narcotic, Tredow told attendees.
“For rent checks, that is a problem,” Tredow said. “If a bank knows you are receiving rent from a cannabis company [those are] illegal funds you are knowingly accepting.”
She said most federally insured banks do not care if the dispensary tenant is a licensed medical marijuana provider complying with Florida law. “The money is considered dirty even if it comes from a legit cannabis company,” Tredow said.
She said a real estate investor or a cannabis company seeking to buy new land may also find it difficult to get title insurance if insurers find out the property will be used for marijuana purposes.
MedMen’s Hansen said the company retained Blake Wilder to handle leasing for several locations, including in Fort Lauderdale and Miami Beach. “They have a pretty good working knowledge of what to look for,” Hansen said.
The biggest hurdle is time and the changing political winds in cities tackling dispensary regulations, Hansen said. In Miami Beach, Hansen claimed, permitting officials had given the company assurances it could open a location on Alton Road. After MedMen signed a 10-year lease and invested $1 million renovating a former Panera Bread restaurant, the city commission passed new regulations that prohibited its dispensary from being within 1,200 feet of another medical cannabis store that is already open, Hansen said.
The company details the allegations in a recently filed lawsuit. Hansen said MedMen has had similar experiences in other cities and counties.
“That is not an outlier,” he said. “That kind of stuff happens all the time, every day.”