Los Angeles Cannabis Retailers Still Struggle To Find Locations Despite Rule Change

In 2022, when Timeka Drew found a storefront for rent in Southeast Los Angeles that complied with all the local regulations for cannabis retail operations, she pounced. 

It was not a simple transaction. The landlord kept changing the deal, a process that was “terrible and preposterous,” Drew said, and she never opened at the site. Unable to open operations at the retail space associated with her license, she has been looking for nearly five years for a viable storefront.

Last year, when the city of Los Angeles allowed retail cannabis owners to look beyond their community plan areas for storefronts, Drew was optimistic that it would help her find a space where she could finally open. She worked with brokers and personally called dozens of property owners. Her search turned up a number of serviceable locations, but not a single owner willing to rent to her. 

The real sticking point, it seems, is still unwilling landlords.

“People don't realize the numbers for the community plan areas, those are all hypothetical,” said Drew, who is the CEO of cannabis brand Biko. “You could have 10 available slots in Bel Air, but if you don't have one owner in Bel Air willing to rent to cannabis, you have zero slots in Bel Air.” 

Real estate has been a hurdle for cannabis operators since recreational marijuana use was legalized in California. Last year, the city of Los Angeles approved an adjustment aimed at making it easier for cannabis retail license holders to find suitable space — a major challenge since they must be certain distances away from sensitive uses including schools, daycares and parks. 

But the tweak, which opened up a wider swath of the city to those looking for a possible storefront, wasn’t the panacea many were hoping for. 

“A lot of my clients thought that this would be a savior for their business, that they could relocate it, and that outside of their community plan area, they have all of LA to pick from, and they were going to find this awesome space” Greenberg Glusker attorney Alexa Steinberg said. “And that just really wasn't the case for a lot of my clients.” 

When would-be retail licensees apply to the city, they must first secure a property to locate their business. An approved license is attached to that property, and if the business wanted to relocate to a storefront with better foot traffic or a more reasonable rent, it was previously required to find a space in the same community plan area. 

The 2023 adjustment allowed retail license holders to look in other parts of the city that hadn't yet reached capacity for cannabis retail operations. 

Many of Steinberg’s clients went “on a wild goose chase” for available, compliant space once they were allowed to move outside their community plan areas, she said. But her clients' real estate searches turned up the same results: a dearth of compliant spaces and landlords that didn’t want to rent to them or would take them as tenants only at rents multiples above market rate, Steinberg said. 

“Much of the LA retail [cannabis] industry has been established on unsustainable leases,” said Traditional President and CEO Alex Freedman, whose company has four dispensaries in LA and also cultivates cannabis. 

Early on, both operators and their landlords believed dispensaries would be wildly profitable, and that resulted in many businesses entering into “irrationally high leases,” that require the business to make solid, double-digit net margins to pay, Freedman said. Few are actually doing that kind of business. 

“These aren’t Gucci stores,” Freedman said. “That's a major driver of why all these businesses can’t make money.”  

No matter where you go in LA, cannabis retailers are facing similar issues with real estate, cannabis industry insiders and operators told Bisnow. 

With more of the city opened up as potential space for a cannabis dispensary, there is now more interest in hip neighborhoods like Echo Park, Silver Lake and the Westside, Drew said. 

“Now, instead of just the people that were put in those community plan areas, everybody's looking for locations in those areas,” Drew said.

Making it easier for retail cannabis businesses to find property is a laudable goal, but the entire system of finding space is still incredibly complex, said Hirsh Jain, founder of Ananda Strategy, an LA-based cannabis consulting firm. Setbacks from sensitive uses make the process restrictive from the jump, he said.

“Even if you try to reduce those restrictions, or make it easier to find property, the universe of eligible properties is very low,” Jain said. 

And within that limited universe, some landlords expect dramatically higher rents for cannabis tenants than their business can support.

“There's landlords that still want nothing to do with cannabis, and then most of the landlords that will have anything to do with it think that they're going to get the deal of a lifetime,” Freedman said. “They really don't understand the current state of the cannabis industry.” 

In Los Angeles and statewide, legal cannabis operators of all types have struggled under intense regulations that are often costly to comply with and that leave them vulnerable to widespread, largely unchecked competition from illegal operators. 

Though the state reeled in $773.5M in cannabis sales tax revenue in the first three quarters of this year, the industry is clearly struggling. Cannabis companies across the state owe $1.3B in back taxes, SFGate reported. 

In Los Angeles, there is often an extra layer of obstacles to navigate. Aside from medical dispensaries, the city has only allowed retail licenses for what are called social equity applicants, or those who have been disproportionately affected by the war on drugs, whether through a marijuana conviction or by living in areas with a large amount of cannabis arrests. 

The system in Los Angeles was intended to help give those most impacted by the illegality of cannabis a chance to benefit from its recreational legalization, but has instead left many financially drained from trying to navigate the process. 

“I feel that with the current landscape and just the amount of locations available, it's going to be very difficult for the remaining 150 or so retail storefront license holders to be able to operationalize and find a location,” Drew said.