Bisnow.com Features Lee & Associates New York City's Greg Tannor

The cannabis industry touches almost every commercial real estate asset class, from industrial to retail to office and flex. Despite its many obstacles, a fervent desire by developers to capitalize on the emerging industry is translating to increased demand for space. A 2021 survey by the National Association of Retailers found that in states where recreational or medicinal marijuana is legal, 36% of members had seen increased demand for warehouses, 23% for storefronts and between 18% and 28% for land.

Greg Tannor, principal and executive managing director at Lee & Associates NYC and part-owner of a retail dispensary in Massachusetts, said investors are attracted to the higher rents commanded by cannabis operations. Some landlords also charge a “cannabis premium,” or an additional fee tacked onto a lease in areas where there is greater competition for properties.

“For the most part, there is not a lot of back and forth in terms of negotiating rents because of the need for space and the limitations surrounding buffer zones along with debt and financing on buildings,” he said.

When a state legalizes recreational cannabis, jurisdictions decide whether or not to allow retail storefronts, and Tannor said many initially choose to opt out. In New Jersey, for example, around 400 municipalities chose not to participate. That drove demand for properties in areas that opted in through the roof, Tannor said.

Some jurisdictions will opt back into a state’s program once they realize the industry’s tax revenue potential. As of December 2021, marijuana sales translated to about $10.4B in tax revenue for states where it is legal, according to a report by the Marijuana Policy Project.

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