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article imageIn Canada, cannabis has huge impact on commercial real estate

By Karen Graham     Mar 20, 2018 in Business
Alberta - Back in November 2017, Alberta made the decision to allow private cannabis outlets to spring up across the province. This decision has proved to be a boon for the commercial real estate industry.
Ben Volorney, a retail broker in the Edmonton office of Avison Young, a global player in the commercial real estate business, likens the coming boom of marijuana shops in Alberta to something out of the 1800s gold rush, according to the Globe and Mail.
"If you want to talk about the Wild, Wild West of cannabis, it's Alberta," says Mr. Volorney. "It's nuts over here, nuts."
Volorney says his office gets hundreds of calls every week from business people wanting to rent 1,200 to 3,000 square feet of retail space to set up a cannabis shop on either a street-front location or in a suburban mall.
Fully private approach to cannabis retail
Alberta takes a different approach to retail sales, unlike Ontario, British Columbia, or Quebec. Alberta has opted for a fully private approach to cannabis retail that will allow for further expansion opportunities available for anyone with the money to invest over the long term.
The market for pot is in full bloom thanks to burgeoning industrial growing operations  marijuana ed...
The market for pot is in full bloom thanks to burgeoning industrial growing operations, marijuana edibles and a higher demand for equipment from those who want to grow -- or consume -- cannabis at home
Josh Edelson, AFP/File
This should come as no surprise because that's the way Alberta handles liquor sales. There are some 1,400 private liquor stores spread across the province. At the present time, when marijuana is legalized this summer, over 200 cannabis shops are expected to open their doors for business, and that is just in Alberta.
Actually, Alberta is taking a slightly different approach to its private retail sales of cannabis. The province wants to play an active role in the recreational marijuana market and will control and profit from all legal online sales. The government argues this will allow for oversight of online sales to ensure customers' ages are verified.
Bill 26 was introduced in November 2017 and will make cannabis consumption legal for persons 18 years of age and older. The bill received royal assent on December 15, 2017. Under the bill, private retailers may sell cannabis to the public, but online sales are reserved to the provincial government.
The decision by Adelanto city officials to allow marijuana cultivation led to a flood of high-end in...
The decision by Adelanto city officials to allow marijuana cultivation led to a flood of high-end investors rushing to buy up warehouses and plots of land in "green zones" earmarked for cultivation
David McNew, AFP
An overall boon to business in the province
In the long run, the rush to secure retail spaces will help lift the fortunes of the sagging retail market that has been hurt by online retailers like Amazon, as well as the chronic slump in the oil patch that has thrown thousands of workers out of a job.
"To start, cannabis retail will occupy roughly one-sixth of the commercial real estate that liquor does," says Mike Tomiyama, the chief operating officer at Calgary-based 420 Clinic, which specializes in medicinal marijuana. He adds that the Alberta Gaming and Liquor Commission requires applicants for a cannabis license to have a signed lease or at least a letter of intent.
"Groups based in Ontario with significant assets are coming to Alberta to secure retail locations," says Mr. Volorney. "Recreational marijuana is a major opportunity for landlords to bolster rent rolls in this province."
Bruce Linton, the founder and chief executive officer of Canada's biggest cannabis operator, Canopy Growth Corp. of Smiths Falls, Ontario says cannabis interest spans the entire country and touches on every aspect of the industry from production and distribution to retail. "The value is far above most tenants in regional and suburban malls."
An employee inspect medicinal marijuana by hand at Tweed INC. in Smith Falls  Ontario December 5  20...
An employee inspect medicinal marijuana by hand at Tweed INC. in Smith Falls, Ontario December 5, 2016
Lars Hagberg, AFP/File
Canopy has no plans to open a retail outlet in Alberta, citing slim profit margins as new entrants rush in to compete with private liquor stores switching to cannabis. They are partnering with Winnipeg-based Delta 9 Cannabis to roll out eight dispensaries in Manitoba.
Big real estate companies, like First Capital Realty and RioCan Real Estate Investment Trust, are quietly lining up to do business with cannabis shops. "We are open to the possibility of properly licensed, recreational cannabis tenants, once the respective provincial regulatory frameworks are in place," says Christian Green, assistant vice-president of investor relations at Toronto-based RioCan.
Just the tip of the iceberg
The marijuana industry is turning out to be a mega-sized business. Many experts say that while business growth in the real estate market is good for retail store operators, this is just the tip of the iceberg.
The real action is on the industrial front — where operators have already locked in as much as 50 million square feet of space, according to Steven Rector, a principal at real estate brokerage Cresa Toronto. Rector points out, "The marijuana industry is having a super significant impact on commercial real estate."
Rector says marijuana growers need substantial space to grow the product, comparable to the "size of Ford Motor Company's car assembly plant in Oakville, Ont., and warehouses the size of Hershey's former chocolate factory in Smiths Falls."
Marijuana being grown in a greenhouse for Canopy Growth Corp in  Smith Falls  Ontario.
Marijuana being grown in a greenhouse for Canopy Growth Corp in Smith Falls, Ontario.
Canopy Growth Corp.
However, big companies like Canopy Growth, Hydropothecary Corp., and Aphria Inc. are not leasing any of their industrial space. They're buying real estate outright using backers with lots of money.
Ottawa has said it will legalize recreational cannabis this summer, but is leaving the specific implementation plans to individual provinces – and this is creating a patchwork of policies and sales systems across the country. Ontario and Quebec are keeping government control of all legal cannabis sales, while Manitoba says it will allow private online sales.
Depending on where a Canadian resides, there are differences in the law regarding homegrown pot plants, with some provinces saying none are allowed and others, like Alberta, allowing up to four potted marijuana plants a year per household.
More about Canada, marijuana legalization Canada, Alberta, Real estate, brick and mortar stores