Commercial cannabis growing operations cut from industrial real estate supply

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Jhe burgeoning and constantly crowded industrial real estate market has recently had to accommodate an increasing number of cannabis cultivation and processing plants in municipalities that allow them.

However, in many cases, the construction of cannabis in these municipalities has led to the rehabilitation of millions of dollars of obsolete industrial facilities.

Based in Chicago Cresco Labs LLC had its first harvest two weeks ago at its newly opened 110,000 square foot facility at 210 Oliver Drive in Marshall, the former site of a Win Schuler and Campbell Soup Co. factory.

“A ton comes in (choose location) because the building is to function as an indoor horticulture facility, so it’s unique in that it must have horticulture facilities, product manufacturing, a distribution center with storage, and you need office space, too,” said Cresco Labs CEO and co-founder Charlie Bachtell. MiBiz.

Securing the vertically integrated cannabis company’s first location in Michigan took nearly four years and collaboration with local investors, Bachtell said. The southwest Michigan location was attractive in part because it’s a short drive from the company’s Chicago headquarters, he said.

At some point, Cresco plans to get into cannabis retail in Michigan, whether that means opening its own dispensary or acquiring existing locations, Bachtell said.

“There are established groups buying up smaller locations (retail and industrial) that couldn’t survive,” said Stephanie Goodman, CEO and founder of Waterford Township. Bricks + Mortar Group LLC real estate development company. “We’re also seeing bigger investment firms moving in and seeing sale-leasebacks in some places.”

Among recent cannabis M&A deals, Cloud Cannabis Co. in early September, acquired a 70,000 square foot commercial grow facility in Kalamazoo Township from a cannabis company KKind. The acquisition was the next step for Cloud cannabis to go fully vertical.

Rehabilitation properties

Meanwhile, long construction times and high material costs are pushing large operators to buy properties with a building on them that can be redeveloped, or existing cannabis businesses, said Bill Bussey, principal broker for the sale at the detail at Bradley Co.

“It’s several million dollars to build a grow facility,” Bussey said. “If you find one that’s already up and running and already has customers, that gets you in business a lot sooner than building from scratch.”

Additionally, municipalities are increasingly zoning dilapidated buildings and tracts of industrial property for cannabis use to improve certain parts of the city.

“Muskegon dealt with it much like cities have with Opportunity Zones,” Bussey said. “They’ve chosen areas they’ve been trying to redevelop for years, and it’s really paying off. They are renovating and rejuvenating entire areas of the city because of it.

Over the past year, Grand Rapids had six industrial properties in various stages of redevelopment for commercial cannabis growers. Company executives said while new tax revenue from retail sales was attracting public attention, rehabilitating industrial properties was an often overlooked positive aspect of the industry.

“A lot of municipalities say ‘no’ at first, then when they see the sky isn’t falling and there are great benefits from a community, labor and revenue perspective, they are starting to feel more and more comfortable with the membership,” Bachtell mentioned.

Bricks + Mortar Group’s transaction rate tends to increase when a new municipality chooses to allow recreational uses, Goodman said.

“We’ve done about 140 transactions over the past two years, and that’s growing as a city engages and we’ll have a flurry of activity,” Goodman said.

The vast majority of deals Bricks + Mortar Group works on are upstate, with only 10 to 15 sales in western Michigan, Goodman said.

“The west side has been slower to sign up, but there are municipalities that are getting on board,” Goodman said. “It’s also more densely populated in the Detroit area. We have more properties available in Muskegon, but it’s been much slower, and when we list one in Detroit, it’s gone in two days.

Additionally, Goodman hopes to see an increase in facilities that rent out industrial space to cannabis growers. These owners can still charge more per square foot than typical industrial uses, but it could also remove barriers for businesses that couldn’t afford their own building.

There is a great need for rental facilities because a lot of people could be shut out of the industry because they can’t fit into a space,” Goodman said.

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