Panelists Ellen Albrecht, senior underwriter, Security 1st Title; Phil Peck, CCIM, VP, Block & Company, Inc.; Shelby Story, VP of operations, Greenlight; and Beverly Weber, partner, Armstrong Teasdale LLP, joined moderator Lindee Deshler, VP of the south-central division and underwriting counsel, Old Republic National Title, to discuss the impact of the legalization of marijuana on commercial real estate and the challenges the industry is facing. CREW KC hosted the event.
The legalization of the use of marijuana in the United States is coming full circle. Dreshler gave a brief overview of the history of cannabis and marijuana in this country. Although the terms often are used interchangeably, cannabis describes cannabis products in general, and marijuana refers specifically to cannabis products that are made from the dried flowers, leaves, stems and seeds of the cannabis plant and contain more than .3 percent of THC.
In the late 1800s, marijuana was used in medicine and sold openly in pharmacies. Recreational use became increasingly popular after 1910. But by the 1930s, the use of marijuana became known as the “marijuana menace,” sparking negative ad campaigns and movies and the passage of the Marijuana Tax Act in 1937, which outlawed the possession and sale of marijuana.
The Controlled Substance Act of 1970 classified marijuana as a schedule 1 drug, along with heroin, cocaine, ecstasy and LSD, meaning that there is no current accepted use and a high potential for abuse. Despite attempts to decriminalize marijuana at the federal level, it remains a class 1 drug today.
Currently, 37 states have legalized marijuana for medical use, and 23 states and Washington D.C. have legalized recreational use. In 2018, Missouri legalized marijuana for medical use and for recreational use in 2022.
According to Weber, Missouri has created 17,000 plus direct jobs in the cannabis industry. Sales of adult use and medical cannabis have now surpassed $1.47 billion in Missouri. The state has collected more than $100 million in taxes. More than $1.3 billion in hard costs were spent to build the industry in Missouri.
Because marijuana is technically federally illegal, it cannot cross state lines. It must be grown, cultivated, processed, stored and sold within state lines. This requires a lot of real estate.
Story said his company, which owns four dispensaries within Missouri and 26 in total, generally leases all of its properties, but it does own some cultivation facilities in other states.
“Our company, the only debt we have on our books is land. It’s financed through a bank and has title insurance. From our perspective, as well as the leasing, all pretty much operate like any business would. There are generally a few more hoops to jump through but we don’t have any problem acquiring real estate, either via lease or purchase,” said Story.
According to Albrecht, several of the title insurance underwriters will insure good titles on cannabis facilities but will not ensure that the use of the property is valid.
“Your [title insurance] policy essentially is just telling you that you have a good title, but you’re not going to have any coverage if you have a claim that is the result of the federal government coming in and taking your property because they decided to enforce marijuana,” Albrecht said.
Peck said his landlord clients are still navigating the whole process with their lenders who may not want a dispensary operating within a property on which they hold a mortgage.
Peck said dispensaries bring a lot of foot traffic to centers in which they are located.
“[The dispensaries] are just under Apple stores on a sales per square foot,” he said.
Story said one of the most common complaints Greenlight gets concerns traffic. Greenlight’s dispensary at 135th and State Line Road has about 30 cars at any given moment during operating hours, either parked or in the drive-through. He said Greenlight doubled its rental space at its Independence dispensary to have more parking spaces.
Peck said landlords and adjacent tenants like the security that dispensaries have said the state mandates that every square inch of the building, except restrooms, be camera monitored.
Because marijuana still is classified as a class 1 drug, federally chartered banks do not do business with customers operating marijuana businesses.
“Our cash goes to a state-charted bank, and then there a couple of hoops that are added to cannabis companies, but generally speaking, once we get the cash into our bank, we operate like every other business,” said Story.
Story said no one in his company has a company credit card because the banks won’t issue them. He also said no cannabis company can be listed on the stock exchanges.
“That means that investment firms don’t put any money into cannabis,” said Story.
Weber said because of the federal status of marijuana, marijuana-related businesses cannot file for bankruptcy, which is regulated under federal law.
“Missouri has revamped our receivership statute kind of in line with all of this cannabis stuff to make it almost mirroring exactly what would happen through a reorganization or a discharged Chapter 7 in federal bankruptcy court. . . In state court, you get a receiver appointed,” said Weber.
Weber said that real estate is the number one asset that cannabis-related companies have outside of their licenses. However, Missouri law does not permit lenders to take a security interest in the licenses.
The Secure and Fair Enforcement Regulation (SAFER) Banking Act is under consideration in Congress, which would permit federally-insured banks to accept deposits from a state-sanctioned marijuana business or service provider.
“The SAFER Banking Act will make a lot of our lives less miserable,” Albrecht said.
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FEATURE PHOTO CREDIT: MARCIA CHARNEY | MWM KC