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Cannabis sellers could be left holding the bag on leases if applications are rejected

Posted by Victoria Price on 2018-05-03
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CALGARY—In the Wild West period of retail cannabis stores, a firm that represents would-be tenants is worried some smaller operators might be hung out to dry.

Dan Houston, senior vice-president of Cresa Alberta, said his firm stepped away from handling cannabis retail store leases.

“Our brokerage did two deals before we decided that we weren’t going to do these anymore because we weren’t comfortable,” said Houston.

Given the extended downturn, Houston said there were many landlords who had retail space that had been sitting empty for an extended period of time suddenly seeing a flood of interest from would-be retailers.

“There was like a gold rush for all these new companies to get a location as quick as they could,” he said. “Landlords capitalized on that.”

In places such as 17 Avenue S.W., where retail space had been selling for $55 to $60 per square foot, Houston saw deals happening where tenants were paying $125 a square foot.

“The environment created a situation where everyone wanted to be the first in. Granted, there were people making bad decisions. You had people who were putting down two to four months of non-refundable deposits and personal guarantees on those leases.”

According to Houston, the problem will become clear when the city and the province grant permits to businesses that have applied to sell cannabis. The city has already created a bylaw that says two stores can’t be within 300 metres of each other, although that limit can be relaxed in certain cases.

He worries that some mom-and-pop retailers who are trying to get into a new market may be burned if their applications aren’t approved. He’s hearing that some would-be cannabis retailers signed deals that included guarantees on their personal assets.

“You would sign a guarantee that if your business went under, your house, personal assets, they’re all collateral and they can come after you personally for the remainder of your term,” said Houston.

In the few deals he helped close, Houston said there was a clause saying everything was contingent on the retailer getting full regulatory approval, but he knows other brokers didn’t always ask for that.

Jeff Robson, owner and broker of JR Mercantile Real Estate Advisors, has also heard rumblings of deals that could come back to bite tenants.

“If they don’t have good representation, they might commit to something they’re stuck with,” said Robson. “I would be advising my clients not to engage with people who don’t put conditions in their deals.”

The city has an online map of all the cannabis retail locations being proposed. They include clusters of potential stores in certain shopping hot spots such as 17 Avenue S.W., and Kensington.

As of Wednesday, the city had received 262 applications for retail cannabis locations.

City spokesperson Matthew Zabloski confirmed that an application on the map isn’t guaranteed to be approved.

“Cannabis stores are a discretionary use and are reviewed based on planning merit as well as other factors, such as proximity to sensitive uses (sites) and proximity to other cannabis stores,” he said in an email to StarMetro.

With files from Elizabeth Cameron.


Original story here