By Hunter Dublin
New York plans to invest $200 million in the local marijuana real estate market, leasing up to 150 retail locations to social equity enterprises to help them compete in the state's new recreational market.
The move is considered the first of its sort in the cannabis business in the United States and, if successful, may serve as a model for other states implementing social equality initiatives.
A DASNY representative confirmed in an email to MJBizDaily that at least one brokerage firm, CBRE Group, is already evaluating properties on behalf of the Dormitory Authority of the State of New York (DASNY), the organization handling the transfer of the monies.
According to CBRE's spokesperson, Jeffrey Gordon, the company is "searching for appropriate retail properties around the state in towns that have opted in to allow retail dispensaries."
The brokerage business did not respond to requests for comment.
The Ripple Effect
While the DASNY stated that no leases for social equity firms had been inked, industry sources claim the government's entry into marijuana real estate is having an impact on other businesses, particularly smaller operations.
"They're out there somewhere." "They're pounding the ground," said Donny Moskovic, a real estate broker with Katz & Associates in New York City.
Moskovic has been collaborating with Cresco Labs, one of the state's ten existing medicinal marijuana licenses, to extend the Chicago-based multistate operator's retail footprint ahead of the adult-use market's introduction.
The real estate assistance for social equity applicants has earned plaudits for New York's innovative approach to boosting diversity and expanding economic prospects for people disadvantaged by the country's drug war.
However, it has raised worries among local businesses and real estate brokers, who believe that state-assisted agents may boost competition – and pricing – for smaller operations looking for retail sites.
"It's making the sector more competitive overall," said Colby Piper, a marijuana-focused real estate broker in New Jersey.
Piper, who has been exploring locations for customers looking to open adult-use businesses in New York, observed that the state has yet to announce whether mandated setbacks between retail outlets will be required.
Mandatory setbacks make it difficult for his clients to sign long-term leases.
Furthermore, landlords frequently prefer long-term leases with the state to leases with private firms since the state is perceived as a more stable tenant, according to Piper.
As a result, Piper is attempting to avoid areas where he hears CBRE agents scouting.
"When we find out where the state is searching, we can gently say (our client), 'This sector might be too congested; we should try the next block up,'" Piper said.
Questions remain unanswered
Several doubts remain, including whether DASNY will successfully secure 150 retail spaces in New York for ten years on a $200 million budget.
The $200 million will come from "license fees and income from the adult-use cannabis market, and up to $150 million from the private sector," according to a May 13 news release, rather than the state general budget.
"Depending on how they negotiate these transactions and when the real rent triggers," Piper said, "it may be viable" to rent 150 locations.
"However, if the rent triggers Day One or Month Two, and they're paying rent before they've written applications or before the application window even opens, that money will burn down quite rapidly."
For example, Piper mentioned that many retail spaces may rent for as much as $45,000 per month.
"If you're paying $45,000 a month, you don't get many sites" with $200 million, according to Piper.
Stakeholders also expressed confusion about the licensing procedure and the social equity program in general.
The state has not yet specified how many adult-use licenses will be awarded. Still, officials have stated that half of the permits would be designated for social justice applicants.
It's also unclear when the license window will open for either social equity or non-social equity enterprises. Furthermore, many business owners look forward to the final state marijuana industry rules.
According to Piper, many people feel they can't establish strong strategies until they first understand the regulatory structure.
"They're developing regulations piecemeal," Piper explained.
"Those attempting to obtain space (for marijuana businesses)... are unable to stay ahead of the game with a risk-averse strategy in the absence of laws," he added.
"If we're looking at five spaces with an operator and the rules say you have to be a thousand feet away from a church, those five places could not be there." We have no idea."
However, Moskovic acknowledged that the New York real estate market is huge enough that DASNY and CBRE's initiatives haven't had a significant impact on dealmakers like him. He also anticipated that it would not be a problem for larger enterprises.
Rather, it will be more difficult for smaller- to medium-sized businesses seeking retail premises that would suit social equity firms, according to Moskovic.
In contrast, Moskovic has had no major problems assisting Cresco Labs in finding real estate for its expansion ambitions.
"At the end of the day," Moskovic added, "there's a lot of real estates out there."