CBD and cannabis: Coming to a retail space near you

When Simon Property Group signed an agreement with Green Growth Brands, Inc. to open as many as 108 Green Growth-brand stores, it signaled a shift in how shopping centers regard cannabidiol (CBD) retailers. Until recently, CBD retail categories were not a topic of discussion however, legalization across the country has forced the issue to the marketplace.

As CBD and cannabis become increasingly legalized and more retailers enter the market, shopping centers are faced with decisions. Knowing that CBD’s popularity does not come without controversy, how do brokers and owners feel about these kinds of stores in their shopping centers? How do retailers feel about leasing space in close proximity to one of these stores? Should they be a permitted use?

A $75 billion opportunity

When last year’s U.S. farm bill removed hemp’s designation as a Schedule I substance, it effectively opened up the market for CBD. A new analysis estimates the CBD market will hit $16 billion by 2025. Reports that Coca-Cola and other major food and beverage brands are watching the CBD space will only add fuel to the fire and push these products more mainstream.

Retail giants such as Walgreens and CVS have even jumped on the CBD bandwagon announcing they will sell certain products in 1,500 of its stores across Colorado, Kentucky, Tennessee, Illinois, and Indiana. According to Walgreens, the products, which include topical creams, patches, and sprays are “in line with its efforts to provide a wider range of health and well-being products.”

As of December 2018, 10 states and the District of Columbia have fully legalized cannabis. An additional 33 states have legalized medical marijuana. Momentum is on cannabis’s side as 62 percent of Americans support marijuana legalization, according to a 2018 Pew Research Center Survey.

The legal U.S. cannabis market could hit $75 billion in sales by 2030. Molson-Coors is one major company looking to get ahead of the trend as it explores developing cannabis-infused beverages in Canada.

There’s a lot of potential, dependent in part on more state or federal legalization of cannabis. But what do brokers, owners, and retailers think about offering space in their shopping centers to CBD and/or cannabis retailers?

We surveyed over 13,000 brokers, owners, retailers, and lawyers about their opinions and policies around CBD stores, cannabis-related retailers, and vape shops as a “permitted use” in shopping centers. What follows is an overview of how the cannabis market potential is exploding, what these stakeholders think, and examples of what the future could hold for CBD and cannabis shops.

3 surprising findings from our survey

After examining the attitudes of retailers, brokers, owners, and lawyers around CBD, cannabis, and vape shops, clear majorities are in favor of these stores. There were three especially interesting results that show just how much perceptions have changed.

1) Retailers are more permissive of stores selling cannabis than owners.

When asked if stores selling cannabis products should be allowed in shopping centers (in states where the sale or dispensary of marijuana products is legal), just over 65 percent of owners said yes. While that’s a positive sign, it’s more tepid than the more than 70 percent of retailers and more than 80 percent of brokers who agreed.

2) Respondents were more accepting of CBD and cannabis retailers than vape stores.

More than 70 percent of retailers, more than 80 percent of brokers, and more than 65 percent of owners said stores selling cannabis products should be allowed in shopping centers. They weren’t, however, as enthusiastic about vape shops.

When asked if vape shops should be allowed in shopping centers as a permissible use, fewer than 60 percent of retailers said yes. Among brokers, just over 75 percent agreed. Only owners, at just under 70 percent, approved of allowing vape shops more so than stores selling cannabis products.

3) Many retailers don’t have a policy against leasing to a retailer who sells cannabis-related products.

More than 40 percent of brokers, more than 50 percent of owners, and more than 70 percent of retailers said they, their clients, their shopping center, and/or their company have no policy against a retailer who sells cannabis-related products.

The future of CBD and cannabis products in shopping centers

The CBD and cannabis trend is moving toward greater acceptance, and the retailers stepping into these markets are opening high-end storefronts with bright modern spaces.

MedMen, for example, opened a store on Fifth Avenue in New York City that resembles an upscale cigar shop. As one CNBC reporter put it, the “overall aesthetic recalls an Apple Store, even complete with red-clad ‘geniuses’ and iPads everywhere.”

Green Growth is starting to open CBD kiosks under its Seventh Sense brand that resemble “part of Neiman Marcus or Nordstrom,” according to Green Growth CEO Peter Horvath.

There are some growing pains, however. MedMen recently secured a new credit line to avert financial troubles caused by high taxes and tight restrictions on legal marijuana.

How to get financing is a major question on the minds of many cannabis-related retailers. Most banks are federally chartered, so retailers must seek funds from credit unions and state-chartered banks. Even when retailers can get financing, a shopping center owner’s lender might have restrictions as to what type of tenants it allows.

Despite restrictions still in place, acceptance of CBD and cannabis looks like it will only become more mainstream.  As attitudes change, more states legalize marijuana, and retailers, owners, and brokers become more and more accepting of CBD and cannabis-related stores, shopping centers will have a growing opportunity ahead of them.

View survey results here.

Copyright 2019 Metro Commercial Real Estate, LLC