For all the talk about the potential revenue that could come from growing and distributing cannabis in the state if it were legalized — and it is hefty — that is just one part of the business puzzle.
Perhaps lost in the discussion about how to legalize it (just for medicinal use, or for everything?) and how to sell it (small, independent entrepreneurs with a nod to social equality, or big companies?) comes the connective logistical pieces that have great value, too.
ROI-NJ’s recent interactive panel discussion, “The State of Cannabis II: Understanding the Logistics of Cannabis,” brought some of these opportunities to light.
And they are as extensive as they are impressive.
CBRE First Vice President Randy Eigen said the benefit to industrial real estate is easy to see if you just follow the numbers.
“Basically, we have a pretty large market in New Jersey for industrial space, but we have a very small amount of vacant space right now,” he told a standing-room-only crowd at Mayfair Farms in West Orange.
“The growers are looking for B and C quality space, not A quality space. There’s about 15 million square feet of vacant space. From our observation of other markets, like California and Colorado, we’re estimating that this industry could occupy about 20 million square feet. That could be a real challenge for industrial space throughout the state.”
The challenges, Eigen said, only start with space.
Because of the connection to illegal activity, Eigen said, CBRE is getting a lot of calls on warehousing for cannabis, but most potential buyers are waiting until some type of legislation is passed before proceeding.
“On the real estate side, there are still a number of issues with respect to this industry because it is not legal, and banking regulations don’t look favorably on it,” he said. “If you’re a (real estate investment trust), you’re not going to be leasing space to a grower or anyone in that industry. That’s a big problem.
“And a lot of the loans that support real estate do not permit you to lease your space to an illegal user. So, that’s the problem that I see being one of the major hurdles.”
But the potential payoff, Eigen said, is huge.
“Today, the average purchase price of an industrial building is $89 a square foot,” he said. “From our observations, we think that number is going to double in the next year.”
Of course, there are options other than industrial warehouse space.
Bill Caruso, an attorney and advocate at Archer & Greiner P.C., knows the cannabis space as well as anyone.
And he knows that businesses tied to the industry could help reshape struggling municipalities throughout the state.
“We’re really blessed here in our state, because it’s not just the industrial properties that can be attractive,” he said. “We’ve got to think outside the box in these places.”
Caruso talked of a conversation with a mayor of a South Jersey town who has been trying to find a new anchor tenant for a strip mall for more than a decade. Caruso mentioned cannabis.
“The question came up because there are innovative ideas coming up in this new industry, where they are using repurposed shopping malls and other facilities for grow and retail opportunities,” Caruso said. “(I asked him), ‘If somebody came to you and said we’re going to turn that Kmart into a vertically integrated grow and retail facility if it were permitted under state law to do that, what would you say?’ His answer was, ‘I don’t know.’
“I get it, because it’s a hard sell to the town, but what else are we going to do with that property?
“His first question was, ‘What’s next to it? Because I’ve got a whole vacant shopping center.’”
The possibilities are endless, Caruso said.
Companies will be needed to package cannabis, transport it and market it — among other needs.
Because of that, Caruso said, New Jersey should feel lucky that it is still developing its cannabis legislation. And luckier still, he said, because the federal government hasn’t completely come around on the issue.
“When the feds decide they want to get into this program, too, and they break down the barriers of interstate commerce, everything on the map is frozen,” he said. “The industry is going to look to consolidate, and they’re not going to want to recreate everything you need to create state by state, including the logistical transport systems. You’ll (be able) to truck it back and forth when interstate commerce is allowed.”
Caruso said this is the golden opportunity for the state.
“Jersey’s development of this industry right now is not just in the growing space, because that might dissipate at some time, but the R&D that’s going to go on, the type of activity that’s going to come in from our own ingenuity that’s growing every day in this industry,” he said.
“These are going to be the new companies that are going to be headquartered here, and they are going to stay here.”
Companies and entrepreneurs aren’t the only ones with the opportunity to benefit financially.
LaQuay Laun Juel, president and general partner of Obsidian Elite Investment Association, said his firm is trying to help smaller investors from socioeconomic communities that normally get shut out of these opportunities.
The first step, he said, is to make sure they understand the depth of the industry.
“Most of our investors don’t understand the fullness of the cannabis industry at certain levels, but a lot of our credited investors do, and they’re just waiting for the actual legislation to be signed,” he said.
“We have various tiers in our organization. The general investor doesn’t understand (the diverse opportunities), they are just thinking dispensaries or possibly cultivation.
“We explain to them that we are going to expand in broad companies throughout the industry, as well as ancillary companies.”