Today we are going to talk about picking the perfect dispensary location. Real Estate. I wanted to make it short and sweet but I felt like it was important to make it its own episode because let’s be honest real estate can make or break a business. Don’t get me wrong we all know there are outliers the destination spots but unless you have a hook or a reason for people to want to drive the extra mile you are better off sticking to these tips that I am about to share.
So before we get into it it is important to note that Real Estate is often your first commitment and your largest investment when you are applying for a dispensary location that’s because jurisdictions will require you to identify your location on your application so it is often the first and most expensive step. It can lure investors in or push them away. You want to be extremely mindful and strategic when selecting your location.
Last note, you will need to know if the permit is tied to the location or the applicant. This is important because if it is tied to the location that means you can never move but if its tied to the applicant it just means that wherever you go the permit goes too. Know the difference and plan accordingly.
This is just advice based on my personal experience and like anything else do what is best for you and your business and go ask a professional for help.
Alright, enough prep lets get into it.
The Green Zone
1- Identify the Green Zone. A green zone is where a county or a city allows cannabis businesses to be located. Now in the regulations it will state where cannabis businesses can live depending on the type of activity. It usually lists a zoning type and some will even call out that they have to be a certain distance from anything that caters to children. For example at one time Oakland required a 700 foot distance from anything that catered to children. Now I had a location that was 300 feet from a preschool BUT on a whim I asked a city staffer privately how does the City measure the 700 feet?
She said path of travel. This was great news for two reasons 1- is because path of travel means you have to follow the rules of the road so for me a one way street an a u turn later my 300 feet went to 900 feet real quick. 2- I am pretty sure that no one else thought to ask this and since I didn’t ask over an email it wasn’t public record, which may or may not have given me an advantage. Even if your property is in the green zone triple check it is not near any schools, kids karate centers, anything like that because the last thing you want is a group of angry organized parents after you, that is not good.
Ok last note on the green zone if you have a spot that is not in the zone but should be in the zone because you measured contact the City and ask, definitely get it in writing if they approve your location and put a copy of the letter in your application, just in case.
Consider the Location of Near by Complementary Business
2- You want to have a location that is easy to get to and close to popular destinations. Are you right off the freeway? Good! next to bus stops, BART or a subway? Even better! A parking lot is gold. It has to be easy for people to pop in and out of your spot. also think about your staff being accessible can help attract talent. Try looking for places near popular destinations like Costco, McDonalds gas stations or grocery stores.
My first dispensary was next to a Taco Bell and a private strip club, it was kinda perfect. It also had a couple billboards which Side note if there is a billboard on the property ask about it when you are negotiating your lease. You may be able to rent it.
Save Money, Rent a Former Bank
3- One of the easiest ways to avoid crazy construction costs is to find an old bank or check cashing center. A bank or check cashing center should only require cosmetic changes (obviously this is subject to your site and city regulations) but think about it, it has a pretty similar use, teller windows and a vault, a waiting area and it was built with security in mind. Plus it will be a breeze to write about the safety and security of your site, cuz if it can house money it house weed. I do want to share a story so one time I applied at a former bank site and I was pumped it was a great location and it had a teller window.
Ah, dispensary with a drive thru? Hell yeah! So I put that in my application, now come to find out some people did not like that idea they thought it would be bad for the community, whatever. The move would have been to win the license without the drive thru and once I was operational then open the drive thru. Lesson learned. And speaking of drive thru a former fast-food location can also be a good idea.
The Smaller the Better
4- Size matters. It’s better to have a smaller size dispensary with affordable rent then commit to a huge space that you can’t afford. Bursting at the seams is a much better problem than not being able to afford your lease. Try to grow into your space vs taking on a huge chunk of real estate on day one. With a large footprint also comes more expenses such as power, security and staff. Everything is slightly increased with a larger footprint from extra cameras to cleaning its all just a bit more expensive.
Conflicts Check
5- Do a conflicts check with your real-estate broker! Find out if they have any financial interests that may compromise their ability to represent you fairly. Now this one comes from personal experience, I once was in an RFP process to compete for a license there was a limited amount of time to submit my application and it required that I identify my realestate.
So my broker at the time showed my a property and tell me everything I wanted to hear to keep me interested in this property but never actually moved the deal forward until one day I pressed him and found out that he had ownership with a competing cannabis company and that company had a deal locked in at the site I wanted. It was a good strategy on their end as I was scrambling to find not only a new site but a new broker who wasn’t representing another competitor. It totally threw me off, and messed up my timeline. I mean ethically I think this dude was wrong.
It just resulted in a bunch of time and money wasted but also the trust was broken BUT I learned to ask more questions. Honestly, this lesson was hard for me but cannabis karma is a thing and I think in the end this all evened out.
Non Binding LOI
6- Try to use a non-binding LOI for your application. Usually in an RFP process the City just want s you to demonstrate control over your property and that the landlord will allow you to conduct business at the site. This can be accomplished with a nonbonding Letter of Intent. A letter of intent basically says that the landlord intends to rent you the space for your use. The good thing is that an LOI is usually free. However if the market is hot in your area there is nothing to bind the landlord to lease you the site you may loose it. So use good judgement here. Another thing you can do is try or defer the rent till after your permit is in hand maybe you are willing to pay slightly above market as an incentive for the landlord to take this deal. The idea is to not commit to the bill right away, A lot of these processes take way longer than you would expect and I have seen a bunch of people pay expensive rent for over a year on a spot they can’t operate in. A non binding LOI is a great way to play for a permit but without a huge financial commitment.
Lease Extensions
7- Once you have secured your license and are negotiating your lease, make sure you have plenty of lease extensions. A lease extension is an option to keep your property and lease terms for another handful of years. So for my dispensary site I have my lease which lasts 5 years and I have 3, 5 year extensions which means I have the right to renew my lease for 5 years (3 different times). It’s nice to have extensions as opposed to just a 15-20 year lease because if business isn’t going according to plan or life happens you its easier to get out of your lease commitment. On the flip side if you risk not getting a long term lease and you sink a ton of money into your space and the landlord may get greedy and try to up your rent. So this option covers you on both sides.
Option to Buy
8- Get an option to buy!! What that means is in your leases you can negotiate a price to purchase your property at a future date. This is an option, you do not have to buy the property but if you want to later it commits the landlord to do it at a locked in price. Even if it seems too high of a price point now, you always want the ability to control your real-estate should you choose, and you never know things change very quickly. An option is great because it kicks the can down the road so you can focus on getting your business together. That way you can see if your business does well enough to support this purchase.
Now this next one I think is important and to be honest is what got me thru the California cannabis industry correction financially.
Keep’em Separated
9- Consider making a new company that holds your lease with the option to purchase and then having that company sublease to the company that holds the dispensary license. So you have company one that holds the control over the real estate, leasing to company two that is the cannabis business. So for me I had the lease with purchase option for company 1 and my dispensary license held in Company 2. I took on partners in the dispensary, so they only had ownership control in company 2, now sometimes we agreed and sometimes we didn’t but either way I wanted more control over my future and finances so while we were cool and rocking. I stacked my cash and got to the point where I could exercise my option to own the property. Meaning Company 1 has now bought the building. This was helpful because when times got tough at the dispensary side and the paychecks were inconsistent I at least had the rental income. I was able to refinance the building and pull money out. Fast forward three years later the building grew in value and I was able to sell the building to get me through the hard time. This would have been very difficult to accomplish if I had to involve my dispensary partners because they all have very different opinions and situations. It is important to note that none of this effected the dispensary in anyway because I didn’t raise the rent or anything and they were locked into a long term lease, which was good for the business and the partners. Win win on all sides. Now if you don’t have the money to purchase the building yourself having it in a separate company can give you flexibility to shop the deal as a real estate deal and not a cannabis deal which opens your options up.
So in short keep try to keep the opportunity to purchase the real estate to isolated form the company conducting the cannabis business. This gives you maximum flexibility to execute the purchase on your terms without the complications that come with financing when you are a cannabis license holder or have partners that may not be on the same page.
And last but not least is number 10 which kinda isn’t real estate related but we are going to let it slide.
Security
10- As we all know security has to be on the forefront of your mind when designing a cannabis business and lets be honest there is only so much you can do if a group of people want to get into your spot but the one thing that has saved me the most grief is roll up doors. That’s right heaven duty commercial sheet metal rollup doors. Now I am not saying that it will stop a criminal but these bad boys are effective at slowing people down enough to have security or the police come. I put them everywhere. In a cultivation site I put them on the doors, even on the interior and at the retail site over doors and windows. It’s really great to be able to just shut it down.
Bonus tip- Do not put an ATM machine near the front of your store. I once had a guy steal a Pacifc Gas and Electric company truck and ram into into the front of the store just to get the atm machine which had like $400 in it but caused 10K in damage. Lesson learned.
I hope this has been helpful for you. Follow me on Ig @highsalwa and go to highSalwa.com to learn more, get some downloads and sign up for an email list and Listen to the High Class Podcast While you are there please leave a comment or suggestions for upcoming episode. Thanks so much for listening. Remember to cultivate community, keep grinding and let’s grow!
