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Pot's Property Profits: Lucrative Returns Surpass Other Top Shops for Landlords

What are the pros and cons of allowing a Cannabis store to occupy space in your Shopping Center?

Photo Courtesy of CoStar.

A legalized recreational cannabis retail store could be more lucrative for a landlord than even an Apple store or a Tiffany's jewelry shop.

Marijuana retail outposts have the potential to drive serious profits for retail landlords as cannabis companies can bring in some of the highest sales per square foot of any other kind of retailer.

If Landlord leases are structured to include percentage rents this allows them to collect premium rental rate and could provide additional profits.

Ten states in the U.S, as well as the District of Columbia, allow the cultivation, sale and use of recreational marijuana, and another 23 states have legalized the use of marijuana for medicinal purposes.

Canada legalized all marijuana sales in October.

MedMen, a high-end chain of marijuana dispensaries, generated sales per square foot as high as $6,257 in its California stores in 2018.

Apple stores pulled in the highest sales of any retailer at $5,546 a square foot in 2017. Tiffany's generated about $2,951 per square foot.

These elevated sales figures generally mean dispensaries can pay higher rents, by some measures, that premium can be as high as 50% above average rates.

Although the marijuana business is legal in some U.S. states, it is still considered illegal under federal law, so many of these retail shops are willing to strike deals in order to secure a location.

Real estate professionals say tenants and landlords both stand to benefit from lucrative returns if they successfully manage the hurdles of getting deals done.

In addition to warehouses that are used to grow the plants, marijuana purveyors also need storefronts to sell the product, creating new opportunities for retail brokers.

The stores often need specific kinds of tenant improvement - focusing on security and zoning regulations that may limit the areas where marijuana shops can locate.

2019 CoStar.

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