Legal weed could be a $75 billion business by 2030
In Los Angeles, a pair of soon-to-open coworking spaces will offer a twist on the formula popularized by behemoth WeWork and The Wing in New York City. Though they boast whiteboards and shared workspace, host regularly scheduled meet-ups and speaking events, and even offer access to advisers and investment capital, these LA incubators aren’t about computers—they’re about cannabis.
Developers see the marijuana industry as an increasingly profitable arena for innovation and business—and coworking spaces as key to connecting players in an industry that, for some, has the frisson of the Wild West.
As the cannabis industry matures, so too will the real estate industry associated with this heavily regulated business. Developers want to capitalize on the potential they see in creating new innovation hubs, office parks, and upscale retail around this emerging opportunity.
According to BDS Analytics, a financial firm that specializes in the cannabis market, California’s marijuana industry is predicted to hit $3.7 billion in sales in 2018 and rise to $5.1 billion in sales in 2019, part of the overall growth of legal sales nationwide.
“This is really an emerging industry, and I think LA is going to be the headquarters of cannabis in America,” says Sean Beddoe, founder and president of Bow West Capital, the lead developer for one of the projects, Green Street. “The Starbucks of the cannabis industry hasn’t been created yet.”
The appeal of cannabis coworking
The backers of both Green Street, a 67,000-square-foot building in Los Angeles’s Jewelry District slated to open in November, and Paragon Space, a four-story office in Hollywood set to open in late August, aren’t interested in stoner-themed offices plastered in tie-dyed ganja posters. No cultivation or retail operations will be permitted in either building, just the work of service industries connected to cannabis, like advertising, branding, and legal firms. The coworking spaces are being pitched to potential clients in the same manner as any startup space, with an emphasis on innovation, technology, and business development.
“As time goes on, the political risk of investing in pot is subsiding,” says Matt Karnes, a financial analyst with GreenWave Advisors. “If the Trump administration was going to do anything, it would have already. That’s putting more institutional investors at ease, and they’re starting to open their eyes and look at businesses in the cannabis and tech space, anything ancillary to the plant-handling part of the industry.”
Green Street, which is set to contain a members-only club, restaurant, and rooftop space, and host a class of 10 to 12 startups seeking advice and funding, may be the “Soho House” of cannabis, says Beddoe, a reference to the successful group of upscale members’ clubs. Paragon, a project of the startup ParagonCoin, will only accept payment in its proprietary cryptocurrency.
Beddoe believes marijuana presents commercial landlords with a sizable opportunity. Developments like Green Street allow them to get involved in the business of cannabis without the regulatory risks that come with the cultivation and retail sides of the business. Bow West and Green Street Agency, a cannabis-centric branding and advertising firm partnering on the project, purchased the turn-of-the-century building for $14 million in December. According to Beddoe, they’ve already leased most of the space.
Jessica VerSteeg, CEO of ParagonCoin, says that Paragon Space is also nearly full, in no small part, she argues, because it fills an important need. Many cannabis-related businesses—even those that don’t directly deal with the product—have trouble finding office space, and when they do find space, owners often charge a premium due to the perceived uncertainty of working in weed. It’s not unheard of for cannabis retail to pay two or three times as much as a traditional tenant.
Paragon offers the security of a landlord comfortable with the industry, the ability to smoke a joint in your office if you so desire (a no-no at WeWork), and competitive rents that range from $449 a month for access or between $2,070 and $2,300 for a private office.
“There isn’t a 4/20 theme anywhere,” says VerSteeg. “It’s whiteboards, desks, and all the same amenities as any other startup space. But here, you know that everybody knows the industry, and could be a potential partner.”
In cannabis, as in real estate, it’s all about location
Cannabis is a land-hungry industry, and finding room for cultivation and retail operations offers the real challenge, and profit center, for cannabis-related real estate. In California, for instance, thanks to Proposition 64, which legalized recreational use, cities can pass their own zoning regulations and the number of licenses is strictly controlled.
But even in a highly regulated industry that is technically illegal on the federal level and lacks traditional banking access, many developers see opportunity in retail space and warehouses for growing, processing, and manufacturing. Industry monitoring firm New Frontier Data believes that by 2020, sales will rival California’s $7 billion wine industry, and prices for scarce square footage have already skyrocketed. In Lynwood, a city in Los Angeles county where taxes on cannabis companies have been lowered, industrial buildings that once cost $107 to $120 per square foot in 2016 now go for $300 or more, according to the Los Angeles Times.
To Read The Rest Of This Article By Patrick Sisson on Curbed L.A.
Published: July 24, 2018
Founder & Interim Editor of L.A. Cannabis News