There are currently 19 dispensaries selling legal cannabis in New Jersey. They span the state, but where these outlets choose to locate isn’t as straightforward as just finding an attractive spot.
Cannabis concerns among landlords, municipal mandates and market conditions all play a role in where dispensaries do – and don’t – set up shop.
New Jersey recorded $79.7 million in adult-use cannabis sales as of the end of the second quarter of 2022. When the figure was released by the New Jersey Cannabis Regulatory Commission, Executive Director Jeff Brown said that market performance is meeting expectations. He noted that “As more cannabis businesses come online, consumers won’t have to travel as far to make purchases.”
But, ahead of an Aug. 21, 2021, deadline about 400 municipalities – of the state’s 564 – opted out of cannabis sales. They did have the option to change their mind – and some have – but the reluctance of the majority to engage puts constraints on where business owners can go. Beyond that, there is not currently a centralized list of opt-in/out localities, creating another hurdle for those looking for space. Each municipality also has the power to regulate what classes of cannabis businesses are allowed, and how many; levy local taxes; institute additional local approval processes, and more.
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Currently, the outlets have a heavy concentration in the Gold Coast area of the state. “I think you could see that those municipalities and those ownership groups are a little bit more willing to work [with dispensaries], but, you know, property owners own properties everywhere,” said Midtown Commercial Realty Managing Director Etan Tammam. “I think that’s just where a lot of these businesses have been focusing, and the ones that are getting priced out are the ones that didn’t get the opportunity are slowly seeking opportunities elsewhere.”
Based in Short Hills, Midtown Commercial is a commercial real estate firm with fully integrated brokerage, management, advisory and equity platforms.
“So you look at it, that’s one of the issues these people are facing is that there’s only a limited number of applicants getting approved in certain municipalities. And if they don’t get approved there, they’ve got to seek opportunity elsewhere,” Tammam said. Accordingly, available real estate is limited.
“I believe you’re getting to a saturation point of the opted in townships,” Ryan Starkman, director at Marlboro-based Pierson Commercial said. For his company, the majority of activity in the sector was seen from January through June. “It’s slowed down tremendously,” he said. “July seems to be when it toned down – there’s definitely a lot of people still out there – but not like [when] we were getting multiple calls a day.”
In municipalities that have not opted out of recreational cannabis, rents can fluctuate depending on the market, according to Tammam. For instance, it’s not hard for a different kind of cannabis operator, smaller cultivators and manufacturers, to be priced out of industrial space in a city like Newark. For the second quarter, a CBRE report identified that submarket as the tightest in the state. It also posted the highest Class A average asking rent – 23% higher quarter over quarter and up 87% year over year to $30.85 per square foot. Even beyond those factors “occasionally, some landlords need to elevate it for cannabis.”
“[A] client I was working with at one point in time said it best,” Tammam said. “He’s like, we can’t afford that. We’re growing plants. I mean, they’re all expensive plants, but then you look at these cultivators and manufacturers, their equipment is not cheap and their infrastructure is not cheap.”
The reasons why rents may be high vary (running the gamut from extra security concerns to issues with loans due to cannabis still being illegal at the federal level), but increased demand coupled with limited space could also account for higher rents, as opposed to a landlord just choosing to mark up the price. “If there was a town that opted in and somebody had their license, or had an application in for the license, they were all looking into the same towns for the same property,” Starkman said. “So, it just came down to being a bidding war rather than the owner saying, ‘Oh, well for cannabis we’ll charge $50 per-square-foot, but somebody else will charge $30 per-square-foot.”