Legal pot spurs demand for commercial real estate, particularly in Alberta

Canada’s impending legalization of marijuana is spurring demand for commercial real estate, particularly for retail shops in Alberta, where the government is selecting private operators to conduct over-the-counter sales, industry players said Tuesday.

Real estate consultancy JLL said its phone has been ‘ringing off the hook” as cannabis companies look to secure space to cultivate the plant and seek retail space to sell the final product.

legalization, cannabis station, Colorado, Alberta, marijuana, pot
Following legalization, cannabis retail popped up across Colorado. Will a similar trend take place in Alberta? Photo by Jeffrey Beall via Wikimedia Commons

Commercial real estate prices haven’t “seen a major bump yet”, but that is expected to change after legalization, research manager Gaurav Mathur said during a panel discussion at an industry conference in Toronto.

“It’s on an asset-by-asset basis, not prevalent throughout the industry just yet,” he said at the Land & Development conference on Tuesday.

Mathur also expects “offshoots” of the domestic cannabis industry, such as supply and accessories shops, to drive demand for commercial real estate going forward.

Canada is preparing for the legalization of cannabis for recreational use later this year, but has left it to the provincial or territorial governments to decide how to distribute the drug. Provinces such as Ontario, Quebec, Nova Scotia and Prince Edward Island have tasked their provincial liquor boards to handle retail sales of marijuana.

But other provinces such as Saskatchewan and Newfoundland and Labrador have said the private sector will handle retail sales.

Alberta, however, is an attractive province for cannabis retail as the Alberta Liquor and Gaming Commission has not put a cap on the number of licenses that will be issued, but stipulates that no one person or entity can hold more than 15 per cent. The province expects to issue roughly 250 licenses to private operators in the first year.

Saskatchewan, for comparison, only plans to issue 51 retail cannabis permits in 32 communities, and qualified applicants will be put into a random selection process, similar to a lottery. Newfoundland and Labrador says its most recent round of applications for potential cannabis retailers was for up to 41 licenses.

Canopy Growth’s vice president of stakeholder and government relations Jeff Ryan told the panel that the company recently shifted focus towards retail as it aims to set up shops in provinces such as Alberta, Newfoundland and Labrador and Saskatchewan.

Ryan said in an interview after the discussion that the licensed producer has encountered stiff competition for retail space in urban centres in Alberta.

The competition for retail space in Alberta is “absolute insanity,” said Mark Goliger, the chief executive officer of National Access Cannabis Corp. which has signed an agreement with coffee chain Second Cup to convert some of its coffee shops into weed dispensaries.

In addition to NAC’s existing network of medical clinics and pharmacies, the company is aiming to open recreational cannabis dispensaries in provinces where legal under its newly-launched Meta Cannabis Supply Co. brand.

Alberta’s cannabis retail licensing system has big players and mom and pop shops alike vying for prime spots and submitting applications, he said.

“Everybody is trying to get retail locations, and that of course is driving up the price and driving up the terms,” he said in an interview.

He said NAC has encountered bidding wars, with other parties “spiking the market with overly aggressive terms” such as double the asking price per square foot and very aggressive termination clauses.

“They’re just going in there and throwing lots of money and being aggressive with landlords, and its creating an out of balance scenario,” Goliger added.

However, some landlords are still hesitant about leasing to cannabis companies amid lingering stigma.

The law firm handling work on leases for Ontario’s pot retail shops has seen pushback from landlords.

“That’s in Ontario where we’re having a government laid-out store,” said Lisa Borsook, executive partner of law firm WeirFoulds LLP.

“And yet it’s been my experience that landlords, nonetheless, have qualms about having cannabis in their centres.”

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