Marijuana Business Magazine July 2018

out a niche in the cannabis industry. Fox did not want to use a broker who just wanted to cash in on a growing field and wasn’t passionate about the industry. Fox told the broker he didn’t want to pay rent until he had his licenses in place, which happened in 2017.That guidance helped the broker find a suit- able property. Fox didn’t pay rent during the waiting period. Shortt said you need to have an attor- ney who is familiar with all marijuana- related state and local regulations and zoning rules. He said it’s also helpful to have a real estate attorney experienced in negotiating leases or purchases. By contrast, an attorney who isn’t familiar with all the nuances of the appropriate rules and regulations would likely have too steep of a learning curve to be helpful, he said. “A lease agreement is a contract, and no two leases are alike,” Shortt said. “A good lawyer will be your advocate as far as get- ting realistic concessions, such as a period of time when the lease payments are abated (not paid), if that is important to you.” Agree to a Longer Lease Another option for marijuana busi- ness owners is to agree to a longer lease, especially because MJ tenants typically pay rent that is above the market rate, Shortt said. “I see a lot of five-year leases signed, but a 10-year lease could be a negotiat- ing chip to convince the landlord to abate your rent payments while you are waiting for your license approval,” Shortt said. Shortt noted that landlords often like longer lease periods, if they’re convinced a viable, long-term business will be occupying the space. It’s expensive for a landlord to switch tenants, because the landlord isn’t col- lecting rent if the space is empty. Also, the landlord likely will have to pay for improvements to the building when a new tenant moves in – on top of paying a broker a commission. Cannavations did not pay rent while it awaited its medical marijuana license during Maryland's year-long approval process. Photo courtesy of Cannavations Leasing in a Hot Market A hot real estate market presents its own challenges. Shortt noted that downtown Seattle is “one of the hottest commercial real estate markets in the country,” and with the strong demand for space, owners aren’t necessarily willing to offer free rent periods – even to traditional tenants. Still, one strategy to try to wrangle free rent in such a market could be leasing space in a building that is off the beaten track, he said. For example, a building that is several blocks away from streets that have a lot of foot and automobile traffic will command lower rents than buildings in the heart of the action. “In real estate, location is everything,” Shortt said. “If you choose a space that is not in a high-traffic area and is less visible, you will pay less in rent, and you might be successful in negotiating a period of free rent.” Still, leasing in a hot market is more challenging than doing a deal in an area where there is a surplus of empty buildings. If prospective tenants are knocking down the landlord’s door to rent space, the landlord will have little incentive to cut you a rent-free deal. “We are not fooling anybody with the real estate deals we have done,” Fox said. “The owners are OK with not charg- ing us rent, because the buildings have been sitting around empty. But that’s probably not the case in a hot real estate market.” Be Willing to Walk Away Sometimes it pays to say no. One owner of a former restaurant building in Ohio wanted Fox to pony up $50,000 in a nonrefundable deposit. That meant if he did not get his license for whatever reason, the building owner would keep the money. “I walked away,” Fox said. “You can’t be afraid to walk away, but that can be pretty frustrating if it is a building you really want. But if you can save money by not paying rent or risking losing your deposit money, in the long run your business will be better off.” ◆ July 2018 • Marijuana Business Magazine • 61