Along with all the normal challenges of starting a new business, prospective marijuana growers, processors and retailers have faced another unique challenge – finding places to operate.
Many property owners, financial institutions and even real estate professionals have refused to deal with marijuana-related businesses even though the state has legalized pot, according to Paul Jacobson, a broker with Regency Group in Bellevue.
Most don’t want to deal with potential action by federal authorities because marijuana remains illegal at the federal level.
“A lot of landlords or counsel or people they know have told them ‘hey, you’re putting your personal property in jeopardy by moving forward with these deals and there could be seizure actions by the federal government or they could come after you years after the fact,'” Jacobson says.
Getting financing also poses a significant challenge. Federal law prohibits banks and large financial institutions from opening accounts for illegal drug enterprises, of which marijuana-related businesses are included.
“Those institutions don’t want to lose their federal banking charter, so they’ve steered clear of it. They don’t want to have loans on their books where they have building owners with marijuana businesses in their buildings as tenants,” he says.
The federal pot ban also prohibits property owners from claiming normal tax deductions they’d usually be allowed, further discouraging them from engaging with marijuana-related businesses.
The cost of insurance is another challenge for landlords and businesses alike, Jacobson says.
“The insurers who are looking at these businesses and properties and insuring them understand that there have been more break-ins and vandalizing and things like that, so there’s an upcharge for insurance.”
Even if a property owner is willing to allow a marijuana-related business, the new state law sets stringent limitations on where they can be located. They can’t operate within 1,000 feet of schools, playgrounds, child care centers and other places open to minors. The restrictions have significantly reduced the number of eligible locations.
Jacobson says there’s been far greater competition for the limited spaces than most anticipated.
“I don’t think anyone, myself included, would have expected somewhere close to 7,000 applications for these businesses.”
Jacobson says for every deal he’s been able to put together in the past year, he’s had at least five other prospective businesses vying for the same spot.
“I could have done 20 times the business that I ended up doing during this licensing period if I had willing landlords on the other side to do the deals with,” he says.
But the veteran real estate broker is confident the situation will eventually change as Washington and Colorado gain experience with their legalized marijuana industries and more states follow suit.
“I think most people out there today assume this is an industry that will grow and we are going to see a dramatically different world over the next five to 10 years, not just in the state of Washington and not just in the U.S., but worldwide,” he says.
Eventually, Jacobson predicts marijuana will spark a commercial real estate boom, with a number of synergistic businesses, like convenience stores and pizza places coming together in strip malls and other centers, to take advantage of the demand for recreational marijuana.