Stores are once again open in New York, and many are packed with the shoppers retailers feared had disappeared forever into the online shopping vortex. However, there are many other stores that never reopened, leaving vacant commercial real estate space in their wake. But there's one industry that is poised to weed out all those "for rent" signs in the retail landscape: the cannabis industry.
Why investors should feel mellow
In a report compiled by MPG Consulting for the New York Medical Cannabis Industry Association, the total regulated market share of the cannabis industry is on track to be a $1.2 billion industry by 2023 and puff up to $4.2 billion by 2027.
It's no surprise that real estate brokers are negotiating storefront leases with landlords. Out-of-state cannabis business representatives have an eye on commercial properties, too. Plus, there are medical marijuana distributors who are looking to expand into the recreational market.
During a panel session at the Commercial Observer's fifth annual Retail & Hospitality Forum in May, Gregory Tannor, managing director and principal of brokerage Lee & Associates NYC, said that the cannabis industry could fill upwards of 10% of New York's retail vacancies with dispensaries and other related businesses.
This budding industry is enough to make any New York retail investor --not just those interested in opening dispensaries-- feel good. There is a wider ripple effect for other retailers who are located near dispensaries. Statistics show that many customers will visit a marijuana retailer twice monthly or even weekly, and so nearby retailers, particularly restaurant owners, will want to take advantage of the foot traffic.
To put it bluntly, Tannor says New York is on the cusp of being "the cannabis capital of the country." But there is a big problem that could cause the whole thing to go up in smoke.
Legal obstacles are harshing the vibe
Although 19 states plus D.C. and Guam have legalized the sale of marijuana for recreational use, it is still illegal at the federal level. The Drug Enforcement Administration (DEA) classifies marijuana as a controlled substance. This forces dispensaries to remain cash-only operations, but the passage of the Secure and Fair Enforcement (SAFE) Banking Act would help.
In a nutshell, the SAFE Act prevents a depository institution from being penalized by a federal banking regulator for providing financial services to a legitimate cannabis-related business operation. If passed, the law would also recognize the proceeds from such businesses to be lawful and therefore not subject to anti-money-laundering laws.
Although Senate Majority Leader Chuck Schumer (D-NY) is a proponent of marijuana legalization, he does have some reservations about the SAFE Act as it relates to banking and finance, so it remains to be seen what this legislation will look like if and when it passes the Senate.
The bottom line
The cannabis industry represents a huge payday for retail in New York, but it will remain controversial as long as marijuana legalization remains a mixed bag in the U.S. Should the SAFE Act be passed, though, it could open the floodgates to a multibillion dollar industry in the Big Apple.