Maryland Finalizes Plan For Legal Cannabis Market, But CRE Unsure How Much Demand It Will Spark

Maryland is preparing to launch its recreational marijuana market, allowing hundreds of new businesses to open in industrial and retail properties for growing and selling cannabis.

The state legislature finalized its plan this weekend to implement marijuana legalization after voters approved a ballot measure in November. The plan forms new licenses for recreational growing facilities and dispensaries that could spur new demand for commercial real estate.

Industry experts remain unsure how much demand will actually arise for cannabis real estate, and they don't expect an immediate wave, but they say the passage of the regulations gives the commercial real estate industry a clearer picture of what to expect. 

The Maryland House of Delegates passed its 100-page bill Saturday after the Senate passed a separate version. The Senate is expected to pass the final version of the bill before the end of the legislative session at midnight on Monday, and Gov. Wes Moore has said he will sign the bill, Maryland Matters reported. 

The bill establishes a framework for industry oversight, sets a cap on the number and types of licenses issued by the state, and sets the sales tax businesses must charge for recreational marijuana products, Baltimore Banner reported. 

Lee & Associates Chesapeake Region President Allan Riorda told Bisnow last week that he expected to see more cannabis-related activity in the real estate market after the bill passes. 

"I would say once the bill is finalized, at that point, you may have people sniffing around," he said. "Prior to that, just maybe getting some market information ... but once that bill passes and there's some definitive guidelines, then you'll actually see people out looking at space."

Maryland’s existing medical marijuana businesses will be the first to legally sell marijuana for recreational use starting July 1 after converting their licenses to recreational.   

Maryland has 97 dispensaries, 21 processors and 18 licensed growers, according to the Maryland Medical Cannabis Commission.

The bill the General Assembly passed could allow for hundreds of new facilities.

State regulators can issue a maximum of 75 standard grower licenses, 100 micro-grower licenses, 75 standard processor licenses and 100 microprocessor licenses, according to the bill. 

A microprocessor is limited to processing up to 1,000 pounds of cannabis a year, but a standard processor license enables a company to process more than 1,000 pounds a year.

A standard grower license entitles the holder to operate an indoor canopy space between 10K SF and 300K SF, according to the bill. A micro-grower is limited to 10K SF of indoor canopy space.

Additionally, the state plans to issue 300 standard dispensary licenses and 200 micro-dispensary licenses, the latter of which prohibits holders from operating a storefront or employing more than 10 people. Regulators can also give up to 50 licenses for on-site marijuana consumption and 10 licenses for incubators that lease space to micro license holders.  

These licenses could potentially mean more demand for the industrial and retail real estate that the cannabis businesses would occupy.

According to a Federal Reserve Bank of Kansas City report, 27% of respondents to a survey of commercial real estate professionals working in states that legalized recreational marijuana said they experienced increased demand for storefronts. Another 21% reported a more robust market for land, and 42% reported higher demand for warehouses.

Despite the experiences of markets like Colorado, local experts tempered expectations for the marijuana industry's impact in Maryland. 

Shad Ewart, an assistant professor at Anne Arundel Community College who teaches a class on marijuana entrepreneurship, said the industry has the potential to be a significant, if limited, player in local retail. If Maryland does issue the maximum number of dispensary licenses, that would mean 300 retail spaces occupied by dispensaries statewide.

"To put that in perspective, there are less than 300 Starbucks in the state of Maryland," Ewart said.   

However, the existence of a new license doesn't mean a new business is opening, as some existing shops seeking licenses to sell marijuana for recreational use could mute the real estate growth. Up to 97 new dispensary licenses are also conversions from businesses already open via medical licenses.   

"I think the biggest problem with this is the fact that they have a cap on the number of licenses," Ewart said. "I believe the issue could easily have been resolved by simply creating a standard and saying, 'OK, they all have to apply, they all get scored' ... and then let economic Darwinism work its way out."

Marijuana growers and processors will likely have the most significant impact in the industrial sector, particularly in Class-B and Class-C warehouse vacancies, Riorda said.

He said that growers and processors don't require a prime location, significant loading capacity, modern truck courts and tall ceiling heights, factors that other industrial tenants like e-commerce operators typically prefer. 

"That helps from the standpoint of the overall market because a lot of these buildings would otherwise not be real popular," Riorda said. "And it helps the overall vacancy by taking some of these older buildings off the market."

The degree to which marijuana processors and growers take up the slack in those spaces will depend on factors up to state regulators, such as the number and location of licenses, he said. 

"Usually, they tend to spread it out a bit," Riorda said. "But in the local market, let's say in the Greater Baltimore area, typically, where these indoor facilities go is into, let's call it, Class-B or C buildings, and that's pretty much typical for what's happened across the country."