Pot chocolate maker wants S.F. mall store
A high-end maker of cannabis-infused chocolate has signed a tentative deal to open a store in the Westfield San Francisco Centre, which experts say would be the first time a major class-A mall has agreed to house a marijuana-based outlet.
While the deal is not finalized and must win city approvals, Défoncé, a cannabis chocolatier started by a former Apple executive, is seeking to move into a 1,000-square-foot space on the third floor of the mall at Fifth and Market streets, according to the application filed with the city Planning Department.
“With our partnership with Westfield Shopping Centre, our exclusive focus will be providing low-dose, high-quality cannabis products designed for the responsible and safe consumption by adults,” Défoncé said in the application. West-
field did not have an official comment on the application.
Défoncé’s chocolate bars are sold widely in cannabis dispensaries, but this would be its first stand-alone shop. In the planning application, Défoncé states that it is busy “opening retail storefronts, pursuing licensing deals and expanding our product lines.”
The Planning Commission is scheduled to consider the application on Oct. 26. It is one of four pending medical cannabis dispensary applications that were allowed to go forward despite a temporary moratorium the Board of Supervisors recently put in place to give the city time to create regulations for sales of recreational cannabis, which become legal next year.
The deal comes as brick-andmortar retail centers are struggling to hold onto market share as online shopping eats into their revenues. That a high-end, publicly traded real estate investment trust like Westfield would even explore such a deal could encourage other real estate investment trusts — known as REITs — to consider cannabis-related tenants, which can generally pay top rents, experts say.
The Dow Jones US Retail REIT Index, made up of 20 top retail landlords, is down more than 30 percent since mid-2016. The ever growing roster of retailers seeking bankruptcy protection include Radio Shack, Wet Seal, Toys R Us, Payless ShoeSource and Gymboree.
“This would be precedentsetting,” said Amanda Ostrowitz, a Denver regulatory attorney specializing in marijuana regulations and banking law. “The growth of online retail has created a situation where the commercial real estate industry has to get more creative. If this works out, it could be a boon for the retail real estate industry. There are precious few sectors that are demanding storefront space at the moment.”
The third floor of the Westfield mall currently has four vacancies. Tenants on the floor include H&M, Banana Republic, Lucky Brand jeans, Express, Godiva chocolates, Clark’s Shoes and mall staples like Kay Jewelers and Solstice Sunglasses.
While Westfield wrote a letter authorizing Défoncé to file the application with the city, the shopping center owner could still back out. Talks with Défoncé could also fall apart if a major tenant in the mall objects. Anchor tenants — Nordstrom and Bloomingdale’s in this case — tend to have clauses in their lease giving them the authority to block other tenants.
A REIT executive who has worked extensively through the Bay Area said that downtown San Francisco is the perfect place to test a pioneering concept like Défoncé. He said cannabis For The Chronicle’s enhanced cannabis coverage, go to www.GreenState.com businesses regularly approach his company, which owns suburban shopping centers with anchor tenants such as Target or Safeway, but the answer is “always no,” he said.
“Like most REITs, we are an extremely conservative, cautious company,” said the executive, who spoke on condition of anonymity because he didn’t have authority to speak to the press. “We have not seen a REIT lease to a cannabis shop. Not yet. It might be a matter of time. Westfield is the biggest and the best. They know what they are doing.”
Matt Holmes, a partner at commercial brokerage Retail West, said it’s likely Westfield is testing the waters and has a “quick exit” written into whatever preliminary agreement exists with Défoncé. He said that most landlords stay away from cannabis businesses because the property owners have loans with banks, which won’t do business with marijuana companies because cannabis sales, while legal in 29 states, are still against federal law.
“I’m surprised to see this crop up in an institutional holding,” he said. “Regulatory wise, I don’t know how they are going to get around it. But we are entering a new paradigm. The whole game is changing.”
If Défoncé does open, “it will become a precedent-setter for the country” and could open the doors for similar transactions, he added.
“These malls never think singularly — it’s always about economy of scale,” he said. “The market is so quick to copy each other. We are all struggling right now in a dwindling retail environment to come up with different concepts.”
Westfield owns and operates 35 shopping centers in the United States and United Kingdom valued at $32 billion, 15 of which are in California.
Bethany Gomez, director of research for the Brightfield Group, a cannabis industry research firm, said that Défoncé’s business model is compatible with a high-end mall clientele.
“This is a new move but not surprising considering how gourmet, cannabis-infused chocolates, generally with lower dosing, are connecting with the high-income consumers,” she said.