Cannabis company's brain trust must include a real estate expert. For many cannabis companies, navigating the every-changing waters of cannabis real estate could mean the difference between success or failure. With all the inconsistent variables of cannabis real estate many groups are retaining cannabis real estate professionals to guide them through the process. Bryan McLaren the CEO at Zoned Properties Inc (OTCQX: ZDPY) joins Dan Humiston to discuss providing real estate and sustainability services for clients in the regulated cannabis industry. Produced by PodConX MJBulls - https://podconx.com/podcasts/raising-cannabis-capital Dan Humiston - https://podconx.com/guests/dan-humiston Bryan McLaren - https://podconx.com/guests/bryan-mclaren Zoned Properties Inc. - https://zonedproperties.com/
Cannabis company's brain trust must include a real estate expert.
For many cannabis companies, navigating the every-changing waters of cannabis real estate could mean the difference between success or failure. With all the inconsistent variables of cannabis real estate many groups are retaining cannabis real estate professionals to guide them through the process. Bryan McLaren the CEO at Zoned Properties Inc (OTCQX: ZDPY) joins Dan Humiston to discuss providing real estate and sustainability services for clients in the regulated cannabis industry.
MJBulls - https://podconx.com/podcasts/raising-cannabis-capital
Dan Humiston - https://podconx.com/guests/dan-humiston
Bryan McLaren - https://podconx.com/guests/bryan-mclaren
Zoned Properties Inc. - https://zonedproperties.com/
Dan Humiston: Today.
And MJ bulls, we are joined by Brian McLaren, the CEO at zone properties. Brian, welcome to the show.
Bryan McLaren: Thanks so much for having me Dan excited to be here.
Dan Humiston: Well, I appreciate you being here with us today, but we have a lot of ground to cover. We have a lot of ground to cover zone properties is a publicly traded company that provides real estate and sustainability services to the cannabis industry. I'd like to start right at the beginning. Most states require applicants to include real estate in their application.
Why is it a bad idea? Just to go out and hire a local real estate agent to do this?
Bryan McLaren: Yeah, great question. And maybe I'll give a little bit of a longer, indirect answer cause it's really. Emergent story, the answers, that question, and also provides really the history of how important real estate is for the regulated cannabis space. So my original background before cannabis was in sustainable development and really focused on community planning, the built environment, and really answering the question.
How do we [00:01:00] organize and develop our communities? In a way that will last and will be good for all community members. So that translates perfectly to the regulated cannabis space. This is a brand new emerging industry. That's an industry that is quickly shifting before our eyes and that is not uniform. So it is different in every single locality, meaning town or city in every single state, as legalization has occurred over time and globally, it's going to be very different in every different country.
So the real estate aspect of this is crucial because that's where. The intersection of those varying regulations occur that will impact the actual cannabis business. In other words, if you cannot get your built physical space for your business, your business can never operate. And the requirement to get a successful location is to navigate the [00:02:00] complex regulations that provide for the zoning And permitting that lets your business run like.
Dan Humiston: And that's where a local real estate agent just can, no way could comprehend the complexities. I know, for instance, cost per square footage is such a major component in projections. And I heard a recent story where a company was in the midst of a build-out in the town. The town said, Hey, you need sprinklers throughout this entire facility, which really bumped up their cost per projection .
Do you see that?
Bryan McLaren: What we're seeing more and more over time because of how challenging and complex the real estate can be for these cannabis businesses. Is it in some states in an earlier markets, you could win your license. So a prospective cannabis operator, individual, or company, they go apply for a state level license.
They become a retailer, they become a cultivator, and then they go find the real estate and they navigate the local real estate laws after they have their state license. [00:03:00] Because of the challenges and the risks that you just mentioned, that sometimes these projects, they invest millions of dollars and the local laws change because of that conflict at the local state and federal level.
What we're seeing more and more now is that the states as they legalize require the real estate to even win or be granted. The state level cannabis license. So if we're looking at new state markets like New York, New Jersey, not only is there such an emphasis on these local townships that either will opt in or opt out by a certain deadline that happens even in New York and New Jersey, even before cannabis businesses can apply for their less state license to begin with.
Dan Humiston: Sure. Yeah.
Bryan McLaren: When you apply for your state license, in most cases, you're required. To not just identify a piece of real estate, but you're required to prove to the state licensing office [00:04:00] that you have local zoning authorization and permitting done. In some cases like happened in the Ohio round recently. So near, near kind of the fall and winter of 2021, they required you to submit a full construction tenant improvement budget to show a certified survey.
So I think we're, we're all evolving and maturing in this cannabis market. That's building real time. And what we're finding is that the regulators want this thing to be thought out. They want to know you have a plan. They want to know you have the capital. They want you to be successful because the tax dollars, the economic benefit, the job growth that is very real.
And these states want it to succeed.
Dan Humiston: Yeah, and it, and it's an expensive process to do that prior to getting the license. You don't even have the license yet, and you're doing it. We could go on this road, this path for a while, but let's jump to a different path and let's talk about facilities that are already up and [00:05:00] running.
so frustrating, but. Most cannabis companies still can't have access to mortgages. So they have all this money tied up in their balance sheet because they own their buildings. What are some ways that they can free up some of this cash?
Bryan McLaren: Yeah.
So for. Listeners here that may be unfamiliar with cannabis or real estate quickly. Let's set the stage. So in commercial real estate, you typically have two types of real estate companies. You have a real estate development or transactional firms. So that's what we do at zoned properties. We provide brokerage services.
We provide advisory and consulting. We provide help for operators or property owners on how to get the zoning and permitting done , how to bring general contractors in for design, how to navigate leasing it to tenants. So that's really on the real estate services and development side, that zoned properties on the other side of the aisle, you typically will have the financial services and , most often in real estate, a lot of the time those are called real estate investment [00:06:00] trusts or re. Reach serve a very important function in commercial real estate, they provide financing for large commercial projects and they typically do what are called lease backs. So they will buy the property and lease it to that operator along with some funds for construction and what's called tenant improvements or renovation capital.
And they'll lease that over a long period of time. Sometimes 10, 15, 20 years. And that is a really important structure for cannabis because there is no other financing alternative for cannabis projects because that our regulations have still not been finalized. And there's still no traditional banking.
So commercial mortgages or first position finance lanes. The REITs have provided billions of dollars for the cannabis industry to develop itself through the real estate. And it's it's, those rates are [00:07:00] changing constantly, but those two pieces of the equation, Dan, you really need both the expertise on the development side and you need the capital to deploy.
Without each of those, what we've seen a lot of these projects is they'll get the capital together. They'll maybe get 80% of the way there, but their budget was wrong. They run out of money or, or they didn't do the permitting and zoning. Right. And they're 90% through their project. They call for construction inspections and the local town or city goes well, you don't have your use permit done.
And you're not in the right zoning, so sorry, but we can't grant your certificate of occupancy to be a cannabis business because you can't do that here.
Dan Humiston: Well, you don't want that.
Bryan McLaren: Right. And then the opposite side of the equation. If you don't have the capital through the REIT structure, you might spend all this time and legal and advisory fees and working through your permitting and getting everything ready. But if you can't come up with [00:08:00] sometimes several million, 10 million, 15 million to build your project, you just.
On pause because you can't have access traditional funding now that.
is going to change. Even with the absence of federal reform, specifically with banking, let alone in the entire industry. Is going to come. It's just when we're already starting to see local state financial institutions and banks lending on more and more cannabis projects at more and more traditional rates.
So it's, I think that the tipping point is welcoming, gone, that this is going to become a landmark industry within our modern communities that does so much good for our community.
Dan Humiston: Oh for sure. And I, I want to touch on that, but one thing I want to just follow up on before we go there is from an investor standpoint, kind of. Painted a kind of a bleak picture just then, you know, for investors. Whoa. There's a lot [00:09:00] of things that could go wrong, but I'm wondering , is that one of the reasons why so many people are still sort of reluctant and the plant touching side of this and companies like yours or organizations like yours, kind of fill that void , you're not a plant touching company.
So. The people that are reluctant to get into it. I mean, like you said, if a cultivation facility could be that finish line and they can't get just certificate of occupancy, that's a real comforting feeling for an investor.
Bryan McLaren: Right. So first and foremost, in anyone from an investment perspective, in my opinion, that's going to get involved with cannabis. You need to make sure you have the right team and expertise at the table with you. So we call that the brain trust For a project to succeed. It's got to have a cannabis brain trust.
You have to have the right legal help, the right accounting and tax help. You have to have the right business expertise, the right real estate expertise. The projects with the right brain trust will succeed or have the best chance of succeeding. So that's first and foremost, for anyone considering an investment, then you [00:10:00] break down into what you refer to damn, which is, do you want to go after direct plant touching cannabis businesses or are you interested in the ancillary plays the non plant touching and there's risk rewards on both those sides, but the upside, the exciting investment part of the cannabis industry.
Is that we're early stage adoption for this new emerging sector. So the reward is much, much higher. If you're willing to navigate the risk and set yourself up to mitigate that risk on the real estate, side. The cap rates and the multiples of the valuation for the real estate is much higher based on supply and demand.
So specifically in real estate because the zoning and the permitting is so tight, there are typically so few locations that these businesses can operate in. And there are so many people interested in operating that the valuation increases on the pieces of property. And because traditional banking is difficult.
[00:11:00] If you line that up, you're typically as an operator going to pay a little bit more for that. So a real estate investor is going to make a higher return. Likewise, on the cannabis side for an investor going right into the plant touching, if you can establish yourself and your brand and your organization, and we watch a lot of our clients do this, that are operators, then you have first bite at the end.
And so your ability to take returns on that investment? Sure. There's a lot of risks, but the upside is humongous. If you can navigate successfully with the right brain trust.
Dan Humiston: For the real estate, it keeps coming back to location, location, location. You're talking about beach, front property, you know, essentially.
Bryan McLaren: Yeah. I mean, early days we've come a long way. Dan and for your listeners, I mean, we've been at this for almost a decade and in the first few years we were looking in locations where there may have only been three or four parcels of land in the entire city or town that had the right zone. So quickly, [00:12:00] what it comes down to in real estate is something called setbacks.
So sure you have to be in the right zoning, but that's true for all industries. You have to either be in C2 I one light industrial. So how towns plan is. They want things like you're playing SIM city. We want industrial to be over here. We want retail over here. So that's the basis. The complexity and cannabis comes down to something called setbacks and protected uses.
So as this new industry is emerging, we're trying to flip the paradigm. We're trying to reverse a hundred years of war on. Propaganda. That's just wrong. We're starting to see real data that is correcting that this doesn't increase risk of overdoses to opioids. It does the opposite. It decreases it, it doesn't lower property values.
It increases property values and decreases crime increases. The tax rate creates job growth. So as we're getting more and more education and data to prove that it's getting easier, but we have. Fight this [00:13:00] wrong impression that cannabis coming to your town is going to be bad. And when that is the starting impression, you tend to see these really strict zoning laws.
Like you can't have your cannabis business within a thousand feet of a church, a school, a park, a daycare. In other words, this is a risky business. We don't want it near our kids and our families. That's that's the layman's term. So. That creates such complexity and it's location, location, location.
Dan Humiston: Yeah. I mean, it's, it's more complicated than building a fireworks factory. Well, let's talk about sustainability. , let's wrap this up with sustainability. I know it's near and dear to your heart helping companies. Why is it important to have a sustainability.
Bryan McLaren: Yeah. So I. My entire graduate career and my entire career pre cannabis, working on sustainability, sustainable development and sustainable communities. What that means like we started off in the discussion is how do we organize our communities and [00:14:00] our businesses, our organizations. In a way that had a lasting positive effect so prosperity when it comes to community planning, zoning real estate is really important.
Prosperity talks about the metrics that make our lives better. So when we refer to sustainable cannabis, sustainable development for cannabis businesses, what we're trying to cross is this intersection. Of the new emerging cannabis market and the results from that market, with everything we care about in our lives , in our buildings, in our communities, sustainable development means that what we do today, won't jeopardize the future.
And it's, this is, I'm just so passionate about this. And I love , the intersection of sustainability.
and cannabis. Cause it's the same thing. It's a grassroots movement. It's decades of people saying the status quo is wrong. It's not working. We shouldn't be imprisoning 40,000 people for cannabis non-violent offenses.
These are events that are [00:15:00] hurting our communities, not sustaining and growing them. So I'll go back to, I've done it a couple of times during this discussion. I mean massive tax benefits that are going to schools, fixing infrastructure reinvesting in local communities. The job growth is tremendous not to mention the decrease in crime and no brainer.
If you stop arresting people for smoking joints, your police forces can concentrate on the things that actually make our communities dangerous. This is all about that prosperity metric and making our community infrastructure sustainable with an exciting new industry. , let's get all the legacy operators that are expert at this, help them transition into the regulated market and just go for it.
That's what the next kind of several decades are in this industry.
Dan Humiston: Man that is inspirational. That is inspirational because , we have the ability with this new industry to rewrite the rule book, do it the right way. It's rarely exciting. Well, I got to [00:16:00] wrap this up, unfortunately. I'm sorry if I could, we could go on forever. I enjoy this conversation. I'll have zoned properties info in the show notes, including their stock information.
So. Learn more about their company or, , you're planning on applying for an application or you're an existing cultivation facility and you just go to the website and book a free consultation. Brian, let's do this again. This was fun. There's a lot more than I need to learn from you, but I appreciate you being on the show.
Bryan McLaren: Yeah. Wonderful. Damn. Thanks for having me come back anytime. And we'll, we've got five to 10 different sections. We need to unpack after that.