Investing in Marijuana dispensary properties and related biz's?

Commercial Real Estate Investing
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Investing in Marijuana dispensary properties and related biz's?

John Arendsen
Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes

I know I might be opening up a real can of something on this thread but I need to get some advice from some commercial RE investors if possible. I recently ran across a rather unique biz op. I have a client that's been looking for multiple  commercial locations to rent/lease for a medical Marijuana retail operation/despencery where they will market a wide variety of Cannibis related products. 

This particular geographic area is in the process of legitimizing Marijuana growing and cultivating operations,  dispensaries, wholesale and retail operations, etc. albeit it is still against the Federal mandate.

My question is do you as a commercial property owner/investor think I would I be liable as the property owner and landlord and subjuct to property forfiture in the event of legal enforcement of said Federal mandate even if it's legal on a local Statewide level and my only involvement is as a landlord with no direct involvement in the biz other than a NNN lease?

I know many will answer by suggesting that I seek legal counsel which I've already done and thus have recieved a good cross section of sound legal advice and opinions. However, I'm particularly inerested in knowing if there are any commercial investors who have had any direct or hands on experience in this arena and what your thoughts, opinions and recommendations are.

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Dan Wallace
Vendor · Denver, CO · Member since 2015 · 63 posts · 20 votes
10y

being here in Colorado the question you have is regularly asked. If there was a change in federal administrations that wanted to crack down on a schedule I drug then yes you property could be seized regardless of your direct involvement. Banks are generally not knowingly allowing tenants in properties that they have loans on due to potential seized but also the fact the feds could take their bank license if the bank was knowingly involved with any aspect of a federally banned activity.

The current DOJ has stated they will not enforce certain laws regarding MJ but again that is subject to change. IMO I think several other states are going to see Colorado's lesson and want to tap into this new tax revenue base. As for the boogie man fear of increased violence, crimes etc, that is just not happening. I have seen no difference from prior to legalization to now.

My advice would be to go into any investment involving MJ with eyes wide open and if you decide to move forward be compensated accordingly.

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  • John Arendsen
    OP
    Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes
    10y

    I would also like to add that I am also about ready to invest in some large 100,000sf greenhouses in Colorado that will be leased long term to growers seeking to cultivate Marijuana under environmentally controlled conditions. These greenhousse will quadruple production and cut costs by more than 50%. 

    But once again we will only be investing in the greenhouses not in the cultivation and/or distribution or marketing process. Should there ever be a reversal in the State or Federal laws prohibiting such use the greenhouses would still be a very viable, albeit not as profitable from an ROI stand point, for the cultivation of vegetable and/or other plants that need year around environmentally controlled conditions.

    My thougt was that since it looks as though there's a real strong possibility that the Marijuana industry looks like it could be here to stay that expanding into commercial and reatail properties that lend themselves to this venue might be a prudent investment. I know there's some risk involved and am quite ready to step up for that inasmuch as I wouldn't be directly involved in the industry but would only be a peripheral investor. 

    The Kennedy's and other families made fortunes from importing Scotch before, during and after prohibition. I'm thinking this may be such an opportunity. Your thoughts and opinions would be greatly appreciated.

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  • Daniel Chang
    Professional · Riverside, CA · Member since 2009 · 254 posts · 273 votes
    10y

    The only experience I have is that every time I list an industrial space, I get several calls from brokers representing the marijuana industry.  I turn every one down both for my own building and advise clients to do the same.  I don't even allow them to discuss how much they are willing to pay.

    Your question of whether you would be liable is ironic.  You knowingly, willingly lease to a marijuana dispensary against Federal mandate, how do you expect to say you have clean hands?  

    Marijuana is illegal in the United States, period.  There is no concept as "legal in the state".  Somehow people think the Federal law presides over State, except when it comes to Marijuana. The only question then is whether the Feds are enforcing this?  Overall I haven't heard much.  However, if rates of Marijuana induced issues, such as driving under influence, start to emerge, you can bet the Fed will start getting involved.

    Now I am curious what your legal counsel has told you.  Please share.

    1Reply
  • Percy N.
    Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 904 votes
    10y

    What is your risk tolerance for a seizure by the DEA?

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  • John Arendsen
    OP
    Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes
    10y

    From what I glean so far, and this is unofficial, property owners would not be liable under State laws where MJ has been legalized for either recreational and/or medicinal use. They can and presently do lease/rent their properties with impunity. 

    However, should the Fed ever intercede and enforce the federal mandate it could pose a potential problem for everyone involved. It poses a risk no doubt. But there are currently 14 other states poised to legalize MJ and I can't help but think that the Fed will acquiesce at some point as they too would stand to gain tremendously from the vast revenues that would be realized.

    It's a risk for sure. But then the Kennedy's and several other families and companies were bordorline bandits during prohibition. Let me disclose now, however, that I do not personally use MJ and am not involved in the cultivation or distribution of it. I'm merely looking at this as a potential investment period.

    2Reply
  • Dan Wallace
    Vendor · Denver, CO · Member since 2015 · 63 posts · 20 votes
    10y

    being here in Colorado the question you have is regularly asked. If there was a change in federal administrations that wanted to crack down on a schedule I drug then yes you property could be seized regardless of your direct involvement. Banks are generally not knowingly allowing tenants in properties that they have loans on due to potential seized but also the fact the feds could take their bank license if the bank was knowingly involved with any aspect of a federally banned activity.

    The current DOJ has stated they will not enforce certain laws regarding MJ but again that is subject to change. IMO I think several other states are going to see Colorado's lesson and want to tap into this new tax revenue base. As for the boogie man fear of increased violence, crimes etc, that is just not happening. I have seen no difference from prior to legalization to now.

    My advice would be to go into any investment involving MJ with eyes wide open and if you decide to move forward be compensated accordingly.

    4Reply
  • Matt Dorsten
    Commercial Real Estate Broker · Denver, CO · Member since 2015 · 38 posts · 8 votes
    10y
    Originally posted by @John Arendsen:

    My question is do you as a commercial property owner/investor think I would I be liable as the property owner and landlord and subjuct to property forfiture in the event of legal enforcement of said Federal mandate even if it's legal on a local Statewide level and my only involvement is as a landlord with no direct involvement in the biz other than a NNN lease?

    John, to directly answer your question- I would saw yes, you may be subject to property forfeiture if MJ cultivation or distribution is present on your property.  Marijuana is still illegal on the Federal level and even though the current administration has chosen to to utilize resources to fight the legalization of MJ, it's still federally illegal and could change with the next administration or the next or the next... until federally legalized.  Just today an article was published in the Denver Business Journal about a Credit Union not being cleared by the Federal Reserve to operate (even though credit unions are state chartered banks but, I digress).  It seems the only Federal agency not fighting marijuana is the DEA but, the IRS and Federal Reserve are putting up fights.

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  • John Arendsen
    OP
    Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes
    10y

    @Dan Wallace, I wasn't even thinking about any "boogie man" issues. If anything I would think that free and open trade of MJ would cut down substantially on the black market influence that usually comes with illigal drug trafficking. 

    I'm just curious to hear from folks that have had some exposure and experience working within and/or around this industry on all levels. I'm pretty confidant that the greenhouse venture in Colorado is solid as it's a subsidiary of a publicly held company.

    In any event we'll be visiting your beautiful city from the 27-29 and treking down to Pueble to actually see a working greenhouse in progress. This company is building another 2-4 at 3.5m ea by the end of '15 so I'm sure they wouldn't be stepping up that hard and fast if they were worried. Thanks for your feedback. It's much appreciated.

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  • John Arendsen
    OP
    Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes
    10y

    @Matt Dorsten, I'm on board with your concerns about dealing with a lot of cash and not knowing where to put it or how to protect it. But I'm looking into an idea that may remedy that problem. If it works out it could be the answer to a huge problem. It's really very timely recieving so much valuable input just before visiting your beautiful city.

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  • Linda WeygantPro Member
    Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
    10y

    I recently attended a class regarding how to do accounting and taxes for the marijuana industry.  It's truly fascinating how it all works and comes together so that you are reporting your federally "illegal" income and paying taxes on it.

    Make sure you get an accountant on your team who understands the intricacies of this.  The marijuana laws in Colorado are such that things like cash handling and storage are mandated.  You've got to use accepted procedures for all of it.  The security requirements alone are very strict (and also somewhat expensive).

    Good luck!

    Podcast Guest on Show #244
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  • John Arendsen
    OP
    Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes
    10y

    @Linda Weygant, Good to know about your services in the event I delve further into this industry than that of a stockholder in a greenhouse start up in Colorado. Presently that's where my interest level goes. However, should the laws change in Cali I've got my eyes on some other opps in the retail sector.

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  • John D.
    Rental Property Investor · La Quinta, CA · Member since 2014 · 1k+ posts · 779 votes
    10y

    @John Arendsen are your interests in CO or CA?

    Even ignoring the federal issue, in CA the city, county, and state laws, ordinances, and land use policies change by location.  As CA primarily embraced individual cultivation instead of commercial cultivation (and city and county laws often largely followed), the issues are very very different then CO.

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  • John Arendsen
    OP
    Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes
    10y

    @John D., My only interest at this time is as a stockholder of subsidiary to a publicly traded company in Colorado that's currently building 100,000sf environmentally controlled greenhouses that they will in turn lease to MJ growers. 

    Beyond that I'm looking at the possibility of purchasing some commercial/retail space in the San Diego area to lease to some folks who want to operate medical MJ dispensaries in a city that's in the process of allowing them. But I don't plan on having any direct involvement with them other than just being the landlord.

    I personally don't consume MJ in any form but I certainly don't have any problem capitalizing on the business ends of the industry if and when the opportunities should present themselves. 

    My only trepidation is the FED should they decide to intervene. It would be just like them to allow a ton of trade and commerce to take place where millions perhaps hundreds of millions or even billions of dollars would be generated only to jump in and hammer the entire industry right out from under the entrepreneurs who are participating in it. 

    Just imagine the field day they would have confiscating all the real and personal property. It could be a huge payday for them. I'm not as concerned about it should a democrat be elected president. However, should a republican take the helm it could be trouble for the industry and perhaps even set it back tremendously. 

    There's still a lot to think about whence considering getting involved with the MJ industry. But then that's what entrepreneurism is all about isn't it? I mean had the Kennedy family not taken the chances they took importing Scotch during the days of Prohibition they surely wouldn't have become one of the wealthiest families in America.

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  • John D.
    Rental Property Investor · La Quinta, CA · Member since 2014 · 1k+ posts · 779 votes
    10y

    The FED should not be your only trepidation.  Again there are local, city, county, state, and other laws, policies, ordinances, use policies, etc. to dig into.  San Diego has shut down a number of dispensaries -- very few are actually licensed -- and the power that be there have talked about stiff penalties for those that continually get shut down and pop up in other locations.  I know very little about the San Diego market, but I do know no matter where you are in CA there are tons of non-federal considerations regardless of your level of involvement, across both cultivation and distribution (and every area inbetween).

    1Reply
  • John Arendsen
    OP
    Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes
    10y

    @John D., As I previously stated, I'm only looking into this at this point in Cali. I have no intention of getting involved with the industry even as a landlord unless I feel pretty safe which may be never unless there's a lot of changes that put the industry in a much better comfort zone. 

    I have purchased stock in a company in Colorado where at least it's legal in that State. But I'm not so heavily vested that it would be a major hit on my investment portfolio. If it pans out great. If not..................Oh Well. N E X T!!

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  • John D.
    Rental Property Investor · La Quinta, CA · Member since 2014 · 1k+ posts · 779 votes
    10y

    "GrowCo builds its greenhouses for $45 sq ft and leases its greenhouse systems for $20 sq ft annually."

    Assuming that's the company you are talking about, if shareholders are getting anywhere near the 40% annual return the company might at scale, that seems like a pretty good risk/reward tradeoff.

    1Reply
  • Bruce May
    Lender · San Diego, CA · Member since 2011 · 664 posts · 231 votes
    10y

    I find this subject very interesting and have been considering many different facets of it. Below is a link to a recent article in which a Federal judge told the DEA to stop harassing marijuana providers.

    http://www.washingtonpost.com/news/wonkblog/wp/2015/10/20/federal-court-tells-the-dea-to-stop-harassing-medical-marijuana-providers/

    The reality, IMO, is that it will be legal across the country within the next couple of years. I believe the Feds will be forced to get on board because it will be too much for them reverse.

    Now more directly to your question, I have friends in the law enforcement business locally. They are shutting down large grows when they find them and turning over the operators to the IRS for tax evasion but I have not heard of them seizing and real estate in the process.

    4Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    10y

    It appears we are on a path to legalization in many states. During the last years of the 1900s prohibition judges were fining violators one dollar. I suspect this might be in MJs future. As it is Keller Williams was advertising grow spaces on first page of their websites front and center over two years ago in CO. I think it is 23 states now have some form of legalization. Cali and some others coming up 2016 for recreational. Once this hit 25+ it is likely a done deal in many peoples eyes. Turning back the clock could be politcal suicide just as it was during prohibition. There still will be dry counties just like there is now for alcohol. Colorado will eventually be one of the smaller players. Cali will lead the nation in this one product just like it does for just about everything that is grown.

    2Reply
  • John Arendsen
    OP
    Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes
    10y

    @Bruce May, Interesting article and thanks for passing it along. Lot's of reassuring info there. Makes me feel a little less tepid. I can see a lot of upward mobility for RE investors purchasing and leasing retail properties for some pretty good ROI. Especially if they're NNN.

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  • John Arendsen
    OP
    Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes
    10y

    @Matt R., No doubt Cali will become the power behind the throne as they are the #1 agro State in the Country and probably one of the biggest on the Globe. I have to chuckle a bit on the 1$ fine during Prohibition. That was actually a lot of $$$ then. Especially during the depression.

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  • Mark Bensadon
    Real Estate Agent · Seattle, WA · Member since 2015 · 4 posts · 3 votes
    10y

    One thing I can attest to is that Washington state has recently approved the sale and propagation of legal marijuana on Indian reservations. That's federal land people. If you don't see the writing on the wall by now, you're not looking hard enough. I would take caution in how you collect your rental income and take a measure of safety when drafting your lease agreements, but make no mistake, the federal government stands to make a significant profit with this industry and there is NO WAY they're regressing all the statewide reform, taxable revenue, medical benefits for patients and starting another rebellion amongst the MAJORITY of many states' taxpayers to shut something down that is proving to be one of the biggest cash cows it will see in a long time. 

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  • John Arendsen
    OP
    Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes
    10y

    @Mark BensadonWhat does this type of licensing cost? Do you have to be a WA res? Can an out of stater partner with a resident? If so how would the out of state partner protect their interest?

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  • Barbara G.
    Hartsdale, NY · Member since 2015 · 874 posts · 218 votes
    10y

    We are on a path to leagalizing marijuanna

    I don't think there is any turning back

    You know the risk.  You certainly will be compensated for taking that risk.  Its a personality thing.  If you are a risk taker,  and it sounds like you are,  you will go for the Dollars.  Most people will not touch this with a 10 foot pole and they have told you that on this blog.  When and if you do it you will try and Pick the safest place 

    I doubt if they will send anyone to Jail, so it might just be losing money.   

    1Reply
  • John Arendsen
    OP
    Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes
    10y

    @Barbara G.LOL! Been a risk taker all my life. But I learned a long time ago not to jump off a cliff blindfolded. It's OK to take that leap as long as you can see where you're going to land.

    2Reply
  • Parker Cox
    Independent Insurance Agent · San Diego, CA · Member since 2015 · 138 posts · 56 votes
    10y

    @John Arendsen 

    Until it is legalized, you are exposing yourself to an immense amount of risk, for all of the discussed reasons above.  And, from a liability perspective, even if you are not "involved," you can certainly be held liable in quite a few ways in the event of a raid or shut down.  

    On top of that, your inviting a hugely high risk operation on to your property.  Not only are these people a target for law enforcement, but they are a target for other crime enterprises.  They have an immense amount of cash and valuables, easily stolen and re sold.  

    All the people on your property are in a position that if something goes wrong, you are nearly guaranteed to be sued.  

    On top of that, if you are planning on doing something beyond a retail storefront, and building out a warehouse space for cultivation, it can require a ton of building out to the space that will make it quite expensive to change in the event of a shutdown.  

    But, on the bright side, it is certainly possible to create a niche here and charge an arm and a leg for a property specifically suited to the Grower/Sellers needs.  Its certainly an intriguing idea, but there I am not convinced that as of yet it is worth the risk.  

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  • Justin WindhamPro Member
    Banker · Nationwide · Member since 2015 · 4k+ posts · 1k+ votes
    10y
    Originally posted by @Mark Bensadon:

    One thing I can attest to is that Washington state has recently approved the sale and propagation of legal marijuana on Indian reservations. That's federal land people. If you don't see the writing on the wall by now, you're not looking hard enough. I would take caution in how you collect your rental income and take a measure of safety when drafting your lease agreements, but make no mistake, the federal government stands to make a significant profit with this industry and there is NO WAY they're regressing all the statewide reform, taxable revenue, medical benefits for patients and starting another rebellion amongst the MAJORITY of many states' taxpayers to shut something down that is proving to be one of the biggest cash cows it will see in a long time. 

     Thanks, Mark! Welcome to BP.

    1Reply
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