American eras are often defined by agricultural commodities. There was King Cotton, then King Corn. Now we have King Cannabis. The demand for legalized cannabis in Michigan is enormous and this new market is important to commercial Realtors and their clients.
The size of the cannabis market has gone from approximately 350,000 registered Michigan medical marijuana caregivers (growers) and patients to 9.9 million people for adult use aka recreational cannabis. Michigan’s market is expected to be the fifth-largest in the nation. With the expanded market now, there’s a tremendous demand for viable licensable properties. People interested in the marijuana industry are everywhere searching for locations. You need to learn which municipalities will allow which medical marijuana and adult-use activities, how licenses are awarded, and how to creatively structure offers and leases, often pending licensing approvals.
Some other highlights and issues to understand for 2020:
- Municipalities still control their own fate. Are they in or are they out? They can be in, to a limited extent, by limiting the types of facilities and numbers of each (currently, there are only a handful of municipalities allowing adult use).
- We foresee a significant increase in the number of municipalities that will allow adult-use facilities over the next year. Sharp Realtors will need to find them. Many municipalities indicated they wanted to wait and see what the adult-use rules specify and those rules have now been adopted. Municipalities are often slow to react and the leaders reluctant to leap into this arena until they see their neighbors taking advantage of the opportunities presented by these facilities. Unless things radically change, these facilities are not expecting tax breaks or money from the MEDC. They pay their full share for a fully taxable piece of property.Besides the usual grower, processor, and retail licenses, there are others under the adult-use canopy which Realtors need to learn about as their clients may want to take advantage of them. They include:
- Consumption Establishment, in the parlance that’s a “smoking lounge.” Put those adjacent to restaurants, event facilities, or at a golf course. Make it like a video arcade.
- Marijuana Event Organizers. If your client has a large open space such as a field, a mall, or a parking lot, what about having a temporary marijuana event at that location? There are the obvious places like music festivals. People can come, buy merchandise, and consume at the event. It’s doubtful we will see it on Calder Plaza or anywhere in Grand Rapids this summer, but one never knows. What about at a football or baseball stadium?
- Delivery License. This license is not yet available. It’s in the proposed Rules and we expect it will pass. This will allow a delivery service to take the product from the retail shop to a residence. It is not a secured transport and essentially replaces the requirement that home deliveries be done by an employee of the retail entity.
- We also predict, which will be the impetus for further tremendous increased expansion in the industry, that the two-year lockout of non-MMFLA licensees is reduced to one year. Right now, the MMFLA licensees who are getting Adult Use licenses have that two-year protection from November 1, 2019. The change, if it occurs, would mean that any applicant could get the major adult-use licenses beginning November 1, 2020. This is just a prediction. I have no substantiation for it other than just my experience in this industry.
What should Realtors do if they want to work with businesses in this field?
- Help their clients understand the municipal ordinances which grant marijuana business opportunities, including restrictions on license numbers, locations, and buffer zones.
- In evaluating possible locations for their clients, understand the costs associated with such a development and the length of time required for construction/build-out and the licensing process.
- Recognize that property values are constantly changing in this new world of marijuana business as more municipalities jump into the business arena. Costs for electricity, water and transportation through a secured transporter play significant roles in determining value.
- Since this is a cash business, understand the requirements of Currency Transaction Reporting (IRS form 8300) for those receiving cash payments. This includes landlords. Recording requirements relate to “a series of transactions,” not just to each individual payment. If you are a landlord or property manager, it will be best if you understand its requirements.
- Learn the future of the industry so that you can help your clients best evaluate options and opportunities for initial operations, optional licenses, and expansion opportunities.
King Weed dominates the real estate market as a new year and new decade dawns. Realtors take heart; the expansion of this growing business has just begun. Opportunities abound for those willing to learn and work.
Cannabis in Michigan just keeps on growing.