Cannabis Campuses Coming To Golden State In 2018
November 06, 2017
Before recreational cannabis enthusiasts light up legally in California, cultivators and dispensaries will face many headaches. Finding real estate will be one of them. New regulations will push more grow operations indoors and increase demand for already limited industrial space. Canna-Hub, a developer focused on the cannabis industry, is offering a solution: cannabis campuses devoted to the cultivation, testing and distribution of legal cannabis.
“There is going to be a rush to find real estate,” Canna-Hub CEO and founder Tim McGraw said. Canna-Hub is not the only CRE business finding new opportunities in this budding industry. Napa architect Chris Craiker has been renovating warehouses in Northern California, near the Sierra Mountains, into grow operations over the last 18 months. He has been retrofitting and making these buildings compliant, according to the Napa Valley Register. Los Angeles-based private equity firm MedMen also is seeking investors to raise $250M for its marijuana business to grow and sell cannabis in Los Angeles, Las Vegas and Manhattan. Canna-Hub is expanding and prefers good logistical spots in smaller cities for its cannabis hubs. Its under-development campuses are right off Interstate 5 near Fresno and Bakersfield.
In Williams, California, Canna-Hub has secured an 80-acre site with 1.2M SF. It also has another 16-acre site in Mendota, California. Space is rented at a low cost per square foot, and Canna-Hub does not charge a percentage of gross revenues, McGraw said. These campuses also have huge power demands and Canna-Hub’s campuses will create microgrids and use renewable energy. They will meet or exceed California energy requirements, McGraw said. The facilities will provide sterile environments so operators will not have to worry about pests, mildew and other problems. The campuses also will provide sterile labs and distribution facilities. The Williams facility is expected to accommodate about 120 operators, according to McGraw.
Even with these real estate options, the new regulations will be tough to follow for many operators. About a third of cannabis companies are expected to stay illegal because of the significant red tape and new regulations that will require testing, tracking and a 15% tax on the retail value, the Los Angeles Times reports. “It’s essentially been the Wild West. There has been no third-party testing, no seed-to-sale tracking and no enforcement,” McGraw said. To get a license in California, operators need to prove they have a real estate space or a building zoned for cannabis operations, he said. Demand for space built for cannabis operators has been high, and McGraw said his company is getting calls from four new operators per day. “A lot of these guys come to us because we offer a prepackaged solution,” McGraw said. “But beyond that it’s going to be a real knife fight as far as market share goes.”
The Wine Country fires also complicate operations for several cultivators and collectives that lost their crops. With new regulations, they will not be able to set up operations in the same location and may have to move elsewhere. Arduous zoning requirements and the cost of real estate in the Bay Area make it more difficult for cannabis operators to afford to be within the Bay Area proper, McGraw said. Low vacancy in industrial also will push out some cannabis operators, especially if cities increase enforcement. California Capital & Investment Group CEO Phil Tagami said during a recent Bisnow event there needs to be stepped-up enforcement of illegal grow operations in industrial spaces at the Port of Oakland to allow other businesses to find the industrial space they need.
Fighting Negative Perception
Cannabis operators also face significant negative perception that is often unfounded, according to McGraw. States that have regulated cannabis also have reported a 25% reduction in opioid overdoses and a decrease in violence, he said. In California, legal cannabis is expected to add over $5B to the state’s economy, according to the Los Angeles Times. Large cities and counties in the Bay Area have banned operations or are very restrictive on where operations can be located and have so many different rules, it will make it more difficult for operators to be competitive, he said. San Francisco continues to debate if it will allow recreational sales. Some cities are charging $15/SF for a permit fee and 5% gross revenues. The perception that cannabis is just printing money is false, he said. “The regulated cannabis space has a huge amount of overhead,” he said. “Regular market margins are much thinner. The ordinances [cities] are passing end up repelling operators.” In-state first-time operators also will face tough competition. With many California operators unfamiliar with new regulations, McGraw said out-of-state operators are coming in from Washington, Colorado, Nevada, Oregon and New York. These operators have a leg up since they have already dealt with similar state regulations. “The first year [of legalization] is going to be very interesting,” McGraw said. “It’s a huge endeavor for a state to wrap its arms around.”