Renting to Marijuana Dispensary in LA County?

Question

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

Account Closed · Answer

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.

Ash Patel · Answer

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.

Mark Creason · Answer

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

Account Closed · Answer

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

Account Closed · Answer

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.

Johnny Nguyen · Answer

Just curious, what are rental costs for dispensaries in Colorado, WA or CA?

Will F. · Answer

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.

Will F. · Answer

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.

Renting to Marijuana Dispensary in LA County?

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