Rejections of pot shops Could Burn owners with leases
Real estate broker ‘overwhelmed at … the lack of foresight we’ve seen in some cases’
Dozens of would-be pot barons may be stuck with long-term leases if their cannabis shop dreams go up in smoke, a Calgary-based commercial real estate advisory firm warns.
Grant Kosowan, president of Orange Group Commercial Real Estate, said with just weeks to go until cannabis is legalized in Canada, there are growing signs some who had hoped to get in on the ground floor of the booming new sector won’t make the cut when the city completes its approval process, leaving them stuck with leased properties that will be difficult to unload.
“I’m just overwhelmed at all the folks who took a crack at this and the lack of foresight we’ve seen in some cases,” said Kosowan, whose company negotiates real estate deals for companies including Starbucks and H&R Block.
“Some of these guys are tying up real estate with long-term commitments despite the fact there’s a ton of potential risks associated with it.”
Kosowan noted that because signed lease agreements or certificates of title are required before development permits can be obtained, would-be weed merchants in some cases locked into leases with no out clauses, potentially leaving them on the hook for large amounts of future rent without being able to operate a store.
“Given the embryonic state of the industry, many cannabis retailers didn’t realize this when they entered into agreements with savvy landlords and their leasing agents,” he said.
“The licensing process also created a feeding frenzy on locations that drove rental rates and risk up, specifically for cannabis tenants.”
As of Monday, of the 269 applications the city had received for cannabis stores, there was a nearly even split between those given the green light (114) versus those that have been rejected (113).
Further complicating the process is a staggering 94 appeals of applications, most of those (70) petitioning against their applications being denied by the city, with the remainder being appeals against approved plans.
To date, only 58 applications have managed to steer through the process without facing an appeal, and can now move forward to obtain building permits and business licences ahead of Oct. 17, when cannabis is formally legalized.
Due to the massive stack of appeals before the subdivision and development appeal board, city regulators have signalled it’s likely many prospective pot shops will be delayed well beyond the day cannabis is no longer considered an illicit substance.
Brandy MacInnis, senior special projects officer for the city, said in some cases hopeful retailers took a gamble in securing building permits and beginning work to have shops ready in time for legalization. But those efforts provided no guarantee that their applications would ultimately be approved.
“There are some that took the risk that their development permit would be approved and started construction,” she said.
“If they’re not approved, they might have a really nice storage room, but not a cannabis store.”
Given the fact some prospective business owners may have overreached in hopes of landing a cannabis shop to take advantage of the nascent industry, Kosowan said his company is zeroing in on locations that have been rejected, in hopes of securing prime property for their clients at a reduced rate.
“We’ll be looking for opportunities on behalf of our clients — we’ve already identified a lot of rejected locations,” Kosowan said.
He added the real estate gold rush for pot property is reminiscent of the privatization of Alberta’s liquor industry in 1993, but with many more unknowns.
“In any new industry, there’s going to be a few that are going to swing for the fences and a few that are going to strike out.”
Some of these guys are tying up real estate with long-term commitments despite the fact there’s a ton of potential risks.