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PLANTS
A Site Selection Web Exclusive, March 2018
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High Signs

Real estate and economic developers find it’s good to touch the green, green grass.

PLANTS
Markham, Ontario–based MedReleaf Corp. announced in February it had entered into agreements to acquire 1 million sq. ft. of existing greenhouse infrastructure on a 69-acre property in Exeter, along with 95 acres of adjacent land.
Image courtesy of MedReleaf

by ADAM BRUNS

There’s no holding it in anymore: Medical and recreational cannabis continues to translate into investment in real estate and buildings across North America. Highlights from an unscientific survey of news, deals and projects include major investments in California and Canada commensurate with new regulations coming into effect in those territories:

Canada: In the nation to the north, where full recreational legalization is expected later this year, cannabis use is now tracked by the data crunchers at Statistics Canada, who helpfully report that the best prices for medical marijuana in Canada are in British Columbia (C$7.63 per gram). The best prices for the prodigious amount of illegal, non-medical cannabis are found in Manitoba (C$6.65). No matter which category, prices have steadily declined over the past decade.

How many countries do you know that maintain a “Cannabis Stats Hub,” where such crowdsourcing questions as this one are asked? “Please help us improve our estimates by telling us what you paid for your latest purchase of cannabis.” Statistical formalities also can incite a giggle or two: “Statistics Canada assumes that when someone reports consuming cannabis at least once a week,” says the organization, “they actually consume cannabis 208 times per year, although this could range from 52 to 365 times.”

Canada is nothing if not professional in evaluating cannabis consumption among its population. Numbers released in January show substantial medical cannabis use, and substantial statistical rigor in learning more.

“In 2017, about 4.9 million Canadians aged 15 to 64 spent an estimated $5.7 billion on cannabis for medical and non-medical purposes,” the organization reported. By comparison, in 2016, household purchases of alcohol were $22.3 billion, and household purchases of tobacco were $16 billion. “The majority of the household spending on cannabis (over 90 percent) was for non-medical purposes. The purchase and consumption of cannabis for non-medical purposes is currently not legal in Canada.”

Since tracking began in 1961, domestic production has grown by an average of over 7 percent, says Statistics Canada of its Cannabis Economic Accounts. Consumption has shifted from 40 percent originating outside Canada in the 1960s to 8 percent now, and in fact, sales of Canadian cannabis have increased from around 2 percent of total production in 1961 to 20 percent in 2017.

But it’s medical-related Canadian activity that is driving real estate redevelopment. In late February, for instance, Markham, Ontario–based MedReleaf Corp. announced it had entered into agreements to acquire 1 million sq. ft. of existing greenhouse infrastructure on a 69-acre property in Exeter, 95 acres of adjacent land for $21.5 million in cash and 225,083 common shares of the company.

“The existing Exeter Facility, after retrofitting, will have production capacity of up to 105,000 kilograms of cannabis product annually with a first harvest anticipated by the end of 2018, subject to receipt of a licence from Health Canada,” the company reported. “The Exeter Facility will add large scale, low-cost greenhouse production alongside MedReleaf's two Ontario-based premium indoor production facilities in Markham and Bradford, and, when fully operational, will increase the Company's fully funded capacity to approximately 140,000 kilograms of cannabis product per year.” In addition, the adjacent 95 acres of undeveloped land could accommodate a greenhouse approximately 1.5 times larger than the Exeter facility.

"The addition of greenhouse production in concert with our two best-in-class indoor cultivation facilities will allow us to more rapidly expand capacity and to address the growing need for raw material inputs for extract and other non-flower related products from our premium and exclusive varieties. We also continue to scale our indoor production of high quality, award-winning, premium dried flower in order to serve the recreational and global medical markets," said Neil Closner, CEO of MedReleaf.

Canopy Growth in February received a cultivation license for the first of its two sites in Aldergrove, BC, operating under the BC Tweed Joint Venture Inc. banner. The rapid licensing of the Aldergrove site — the largest federally licensed cannabis site anywhere in the world — “continues a pattern of professional execution for the company as it prepares to meet an unprecedented increase in demand in a few short months once legal adult-use markets commence,” said the company.

The initial licensing covers over 400,000 sq. ft. of growing space, allowing vegetative growth so that the mature plants can be spread into the full 1.3 million sq. ft. in the coming months for flowering and ultimate harvest. Over a single weekend, the site received the largest single shipment of cannabis clones in the company’s history, with over 100,000 live cannabis clones flying from the Tweed Smiths Falls Campus in Ontario to their new home in British Columbia.With the Aldergrove, BC site now into the production stage, BC Tweed’s focus will turn to its second BC site, a 1.7 million sq. ft. greenhouse, with work already well under way. With this expansion, Canopy Growth is on track to have over 5.6 million sq. ft. of domestic growing space.

“As proud native British Columbians and long-time horticulture producers we are excited to continue the proud tradition of BC bud on a national scale,” said Victor Krahn, who runs operations for BC Tweed.

Denmark: In December, Spectrum Cannabis Denmark ApS, a joint venture between Canopy Growth Corporation (the largest cannabis company in the world, encompassing the Spectrum and Tweed brands) and Danish Cannabis ApS, announced plans to establish a 40,000-sq.-m. production facility in Odense. “The immediate conversion of 30,000 sq. m. [322,930 sq. ft.] of existing greenhouse infrastructure could be completed as soon as early 2018, subject to regulatory approvals and licensing, and has the full support of Odense Mayor Peter Rahbæk Juel,” said the company. And the mayor’s comments, again, are familiar from other economic development contexts:

"We are pleased that our efforts to create a stable, skilled and safe environment continues to attract global businesses to Odense,” said Mayor Juel, “which will now share in the prosperity of the largest and most reputable medical cannabis company in the world.”

Denmark is an ideal country for greenhouse cannabis production because of the abundant availability of experienced greenhouse producers and laborers, the company explained. “Odense was specifically chosen because of the support of the greenhouse industry that exists in the area.” The facility is expected to employ more than 125 staff, including the site’s former orchid growers who were offered employment. And there are Canadian ties: “Based on current usage rates in Canadian patient groups, production capacity from the state-of-the art greenhouse could serve the needs of approximately 60,000 patients, with a retail production value of over 500 M DKK (US$),” the company reported, noting that it expects to import Spectrum Cannabis products from Canada, which are currently sold to medical patients in Canada and Germany.”

"The Danish market is a stable, attractive market for a number of strategic reasons," said Bruce Linton, chairman and CEO of Canopy Growth. "In Denmark, we see a strong pharmaceutical industry with an equally strong research tradition as well as a skilled labor pool and attractive energy rates. Based on these foundational aspects and with the expertise of our partners at Danish Cannabis, I am confident we will build upon our global success here in Denmark."

The Danish Medicines Agency (Lægemiddelstyrelsen) continues to pursue evolving cannabis laws that have created a market and job-creating opportunity in the country. Meanwhile, companies such as Canopy Growth have created major brand presence as well as real estate footprints. Canopy Growth operates seven cannabis production sites with more than 665,000 sq. ft. of production capacity. The company “has established partnerships with leading sector names including cannabis icon Snoop Dogg, breeding legends DNA Genetics and Green House seeds, and Fortune 500 alcohol leader Constellation Brands, to name but a few.”

Colorado: Recreational marijuana was legalized in 2014 in Colorado, with sales surpassing $4.6 billion as of January 2018. Tax, license and fee revenue to the state surpassed $247 million in 2017, up nearly 28 percent from $193 million in 2016.

Graph
Revenue from marijuana sales has continued to grow since Colorado legalized recreational use in 2014.
Graph courtesy of the Colorado Department of Revenue

According to a June 2017 report from CBRE, marijuana-related endeavors occupied around 4.2 million sq. ft. of commercial real estate in the Denver metro area at the beginning of 2017 — a 14-percent increase since 18 months previous, and between 3 percent and 4 percent of industrial space in the Denver metro area. Denver put a cap on the number of cultivation locations in May 2016. “Based on a sample size of 25 leases signed between 2014 and 2016, the average effective lease rate for marijuana grow houses was $14.19 per sq. ft. NNN,” said CBRE’s report, “two to three times higher than the average warehouse lease rates in the four top cultivation submarkets.”

“Denver is not the only Colorado market that has seen growth in the industry,” said the CBRE report. “Notably, in the Colorado Springs/Pueblo area, the number of grow operations reached 278 in Q4 2016 — up 38.3 percent from Q2 2015. Colorado’s rural and mountainous areas have attracted many marijuana growers as well, with 178 sites growing to 216 over the same period — a 21.3 percent increase. Meanwhile, retailers of recreational and medical marijuana have also become more abundant. Within Denver’s city limits, the number of marijuana retailers increased 9.8 percent between the two rounds of research, to 235 individual locations.”

The combined market for legal medical and adult cannabis use is projected to grow by compounded annual rate of 18.5 percent, from $2.76 billion in 2015 to $6.5 billion by 2020, according to a report co-produced by New Frontier Data and ARCVIEW Market Research.

Some see the cannabis market growing from $6 billion today to as much as $300 billion, as laws change and opportunity arises on a state-by-state basis. Denver-based Green Man Cannabis dispensary founder Christian Hageseth is one of them, as in January he launched a new ONE Cannabis brand to help potential franchisees (once they obtain a license) cash in on the “green rush.” In its home state of Colorado, ONE Cannabis expects to have 50 locations within the next 36 months.

Pennsylvania: The Pennsylvania Department of Health in December approved Ilera Healthcare LLC., in Taylor Township, Fulton County, to grow and process medical marijuana. “Pennsylvania now has four grower/processors that are fully operational, bringing us one step closer to providing medical marijuana to patients,” said Governor Tom Wolf, who in April 2016 signed into law a medical marijuana program. “More than 8,000 patients have registered to participate in the program, with 435 who have visited an approved practitioner and received their certification. We are working to make sure those patients have access to medical marijuana when the first dispensaries open sometime next year.”

“Patients, caregivers and physicians are actively getting ready to participate in the program,” Acting Health Secretary and Physician General Dr. Rachel Levine said. “More than 150 physicians have been approved as practitioners, with nearly 350 more going through the process.”

The Medical Marijuana Program became effective on May 17, 2016, and is expected to be fully implemented by 2018. The program will offer medical marijuana to patients who are residents of Pennsylvania and under a practitioner’s care for the treatment of a serious medical condition as defined by the Medical Marijuana Law.

California: California’s new adult use and medical cannabis market regulations went into effect January 1. The California Department of Food and Agriculture’s CalCannabis program began accepting applications for annual commercial licenses for cultivators, nurseries and processors.

The space is lucrative enough to attract spec developers as well as end users (of space, not product), who deploy familiar commodity logistics lingo. Sacramento-based real estate development and property management company Canna-Hub is developing two new sites in Mendota and Williams. “With a combined over 1.4 million sq. ft. of space available between Mendota and Williams, these Canna-Hub Business Communities, or ‘cannabis hubs,’ will be able to accommodate numerous license types that are compliant with California’s new cannabis legislation,” says the company.

Cannabis Oil
Products from Ontario-based MedReleaf range from oils to softgels.
Image courtesy of MedReleaf

The 16-acre site in Mendota — long known as the Cantaloupe Capital of the World — boasts more than 100,000 sq. ft. of existing space. With up to 1.2 million sq. ft. of space planned for construction in Williams, that hub will be able to accommodate approximately 100 cannabis licensees “with local permitting fees that are among the lowest in the state,” said the company.

“Both cannabis hubs have already received local city zoning and authorization for indoor cultivation, greenhouses, nurseries, volatile and non-volatile manufacturing, tissue culture labs, third-party testing labs, distribution and transport,” says Canna-Hub.

Arizona: Zoned Properties, meanwhile, has unveiled a master plan for a Chino Valley Cultivation Facility in Arizona, on more than 47 acres of property. “The development concept includes a balance of medical marijuana facilities, corporate office space for management, sustainable housing for on-site workers, and a large-scale solar power installation to support energy requirements,” said Bryan McLaren, CEO of Zoned Properties. “Guided by this vision, we believe the Chino Valley Cultivation Facility has the potential to become a premier and influential property for the emerging medical marijuana industry.

"Today's operating facilities include a small portion of what has been approved in collaboration with local officials as part of a long-term development deal with the municipality,” he said of Chino Valley. “As market demand continues to grow, the Chino Valley Cultivation Facility is well-positioned to expand into a much larger development that can service the entire state of Arizona. The master plan includes roughly 25 acres of operational space dedicated to medical marijuana cultivation and processing, which can be leased at premium rental rates compared to traditional commercial real estate." In January,

Zoned Properties announced it is in discussions with a number of prospective clients to develop licensed medical marijuana facilities via sale-leaseback arrangements located in California, Colorado, Florida and Texas.

"Building on the legislative momentum of the past two years, at least 12 states are considering marijuana legalization in 2018," said McLaren, Chief Executive Officer of Zoned Properties. "We're uniquely positioned to play a critical role as the strategic advisor for development of future medical marijuana projects.”

Maine: In December, Vancouver, B.C.–based Future Farm Technologies — which has other operations in California, Florida and Maryland — announced it had signed a lease agreement for 100 acres in Maine, doubling its previously announced purchase of 120 acres of a licensed industrial hemp farm. As part of the lease agreement, the company has an option to lease up to an additional 1,000 acres from the landlord. The company is setting up a hemp cloning operation, which will use vertical farming technology to supply over 200,000 clones to the farm in 2018.

"This lease agreement positions us in the hemp farming and CBD business for growing, researching, developing and selling organic hemp and CBD oil, which contain a broad range of cannabinoids used to treat a growing population of CBD oil consumers," said Bill Gildea, CEO of Future Farm. "We look forward to a very busy 2018 with our hemp and cannabis operations positioned on both coasts to meet the exploding demand of THC and CBD oil."

CBD oil from hemp is non-psychoactive, and is used to control seizures in children, among other uses. The United States annually imports $500 million of hemp and hemp-related products. “Hemp is a fast-growing, high-margin closely-related business to the cannabis business,” Future Farm said, “growing at a 22-percent CAGR currently valued at over $688 million, and estimated to grow to $1.8 billion by 2020.”

Among MedReleaf’s trio of Ontario sites is this facility at its home base in Markham.

Adam Bruns
Managing Editor of Site Selection magazine

Adam Bruns

Adam Bruns has served as managing editor of Site Selection magazine since February 2002. In the course of reporting hundreds of stories for Site Selection, Adam has visited companies and communities around the globe. A St. Louis native who grew up in the Kansas City suburbs, Adam is a 1986 alumnus of Knox College, and resided in Chicago; Midcoast Maine; Savannah, Georgia; and Lexington, Kentucky, before settling in the Greater Atlanta community of Peachtree Corners, where he lives with his wife and daughter.

   




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