Renting to Marijuana Dispensary in LA County?
Hey any pros and cons of renting to Marijuana dispensary? I don''t know much about the details of the prop 64 that has passed, but apparently recreational marijuana is going to soon be legal for sale in California.
I have a retail space for lease and I've been flooded with emails for Marijuana dispensaries. For instance I've been offered $2000 for a 600 SF space I had listed for $1500, with complete $60k build out done by tenant and up front rent paid for first 3 months.
I am worried about the viability of the business, regulations of the industry, insurance/lending/refinancing and a lot of other unknowns.
I'm wary of doing it at this price and I'm thinking of asking for more rent... then maybe my worries will go away. But even so perhaps they would upset other tenants in building as well.
I was wondering if anyone had any advice
The main con is the legal one. Marijuana is illegal in the entire United States. Currently the law is not being enforced but Jeff Sessions who will most likely be the next Attorney General has stated he does not support the Cole Memo which prevents the federal prosecution of most marijuana cases in states that allow the sale of marijuana. Intentionally renting to a drug dealer under federal law could cause the federal government to seize your property. If there is a seizure it will be of the entire lot not just the part rented to business.
There are multiple cases in federal court right now where drug dealers in states that do not allow the sale of marijuana are asking why the federal government is not providing equal protection under the law based on which state the crime to took place.
I'd say get a lawyer advice. Also, expect future taxes it might be toward the businesses but also perhaps property owners who knows if the city and county or state will add laws and taxes in the future. Perhaps, do year to year leases or an increase 5% each year. If things are stable then you can cap it for a few years. Marijuana is legal in Hawai'i too!.
Since someone decided to say marijuana was legal I thought I would give two links. They show exactly how illegal marijuana is in the United States and what many people in the marijuana business think is coming next.
http://norml.org/laws/item/federal-penalties-2
https://www.merryjane.com/news/us-attorney-general-nominee-jeff-sessions-likely-changing-federal-cannabis-policy
I would certainly wait until after January to decide to rent to them or not.
Obvious answer is ask a lawyer. Beyond that, I would say a close relative has a pretty sizable commercial portfolio and they will not rent to this industry as long as it is federally illegal....
this relative happens to partake in the product (if you know what I mean), and still they want nothing to do with that industry until it is fully legalized.
Too many variables- what if the Feds shut them down, where's your rent? What if the Feds come after YOU for allowing it to occur on your property? What will you do then?
So take that for what it's worth.
The federal law states it is illegal on federal it states: "Marijuana possession remains a federal offense, and the federal law applies to offenses committed on federal property, which includes the Capitol grounds and the mall within DC, as well as all national parks and military property nationwide, and other land under federal control.
Federal law also applies to offenses involving interstate commerce and importation from other countries."
Some explain that the worst that can happen is Sessions could close down stores and large commercial grows. - The feds cannot force state and local police to go against state law and arrest consumers. In the eight legal states (and to varying degree in the 28 medical marijuana states) it will always be legal to possess, consume, grow and give away small amounts of marijuana. - This is the form of legalization achieved in Washington, D.C. So, at worst, we would all be on the D.C. model for a few years.
Additionally, some say, the in new administration would have to view programs like Veteran's for Compassionate Care who use cannabis as a treatment for PTSD veteran's.
With all that has been shared it wouldn't hurt to wait till the new administration takes a stand. If it will effect your profits then I'd say skip it at this time to lessen any future "headache".
OK I see. Locally here in LA county a lot of Marijuana (MJ) stigma has gone away with the changes in local law. I'm glad to get investor opinions here on BP.
I'm trying to push the NOI of this property and I thought this would be good use of a smaller (less desireable) unit which only takes about 15% of the property's rental space. So I'm not too concerned about vacancy It already has an anchor tenant in the building and several other mom and pop tenants.
It's located in a vibrant "hipster" area relatively close to the beach.
I am concerned with the Fed stepping in and potentially taking the property-- but I don't see that happening in the short run or without a way out. I could perhaps structure a clause into the lease that would perhaps make them vacate or change the space into another type of retail if there's a change in law or the Fed was really stepping in.
If someone thinks that the gov could still quickly step in and snatch the property for leasing to this type of tenant let me know your thoughts.
I am also not really having trouble renting this space at $2.50-3/ SF for a normal mom/pop retail tenant, but I think I could push $6+/ SF NNN, which could make me would consider a MJ tenant.
I guess some other negatives could be future buyers or lenders stigma with an MJ tenant... hmmm
Has anyone here rented to dispensaries?
I agree with all the negatives you guys are suggesting. But at there's always a dollar price that will make "headaches" go away IMO.
Another issue (which could be good for an MJ biz) is that the local city is limiting the amount of MJ dispensaries. So essentially if you get a small one into your property before the deadline, the city limits any other dispensaries opening within a couple miles. There are a lot of other regulations, and they're capping the amount of dispensaries. You won't have much competition.
So I'm thinking the limited amount of dispensaries (let's say 20) will really benefit in several years and really benefit in 10-15 years as stigma and laws become more lax.
My sister and I just flew to Colorado last weekend to visit our brother. While there we had to walk thru one of the retail outlets. As soon as you walk thru the door the smell hits you in the face. You will need proper ventilation so the smell doesn't effect your other renters.
Also expect to be paid in cash because they can't deposit the money into banks because they are regulated by the Feds. Because of what they are selling and the cash involved they could become a target for robberies and break-ins.
If you end up renting to them you might think about a percentage rent deal. Rent plus a percentage if they do X dollars. A higher % if they hit a higher number in sales etc.
From a lending perspective, I would pass. Most lenders will not touch the property even if just a small portion of the building has that use.
Mark
They will definitely pay in cash. I had a retail tenant that for whatever reason paid in cash every month. He was a one man operation so we couldn't go in the back to count the money. He would count out $4000 in small bills on his counter and would often lose count and have to start all over. All this while people were in the store shopping! Needless to say I had one hand on my concealed carry 38. I never complained because he paid like clockwork and this forced me to visit the location every month. If people know that you are the landlord, you will have to vary your cash pick up times or make arrangements to receive the cash offsite.
Will F. Raise that rent! I live here I Colorado. Get ready for the flood. You have a most desirable spot. Make them pay what makes you feel comfortable. Hit up the lawyers here and ask for some advice and who to look for in CA. Don't miss the train with all this talk made to run you off from profits. Plenty of people to tell you no. They will site everything in the book to get you to stop making more than them. Trust yourself, make that money. People are doing this ALL day her in Colorado and the property owners are the ones profiting the most... Good luck out there!
Just curious, what are rental costs for dispensaries in Colorado, WA or CA?
Originally posted by @Will F.:
Another issue (which could be good for an MJ biz) is that the local city is limiting the amount of MJ dispensaries. So essentially if you get a small one into your property before the deadline, the city limits any other dispensaries opening within a couple miles. There are a lot of other regulations, and they're capping the amount of dispensaries. You won't have much competition.
So I'm thinking the limited amount of dispensaries (let's say 20) will really benefit in several years and really benefit in 10-15 years as stigma and laws become more lax.
Not sure if you went ahead with that, but first if your lender finds out that you rent to a marijuanua operator this will be considered as a mortgage fraud. They could revoke your loan and foreclose and eventualy sue you.
On the federal level it is still illegal and as others mentionned the fed can seize your property
Honestly to make it worth the risk, i would need at least a 50% cap rate that would pay off the property in 3 years