The budding industry that is taking over Alberta
As we know, the legalization of cannabis for recreational use in Canada is expected to come into effect in the Summer of 2018. In addition to Canada, as of January 2018, the United States now has nine states where the sale and possession of marijuana is legal for both medical and recreational use (Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon, Vermont and Washington). The industry has taken off, and will continue to grow as additional States continue to push for and institute more progressive laws in this regard. Further to this, the cannabis industry has proven to be a game changer in states that have already gone through recreational legalization, and from what we are currently witnessing locally, there's no doubt that it is already having a tangible effect on our commercial real estate market here in Edmonton. From the Aurora Cannabis facility at the Edmonton International Airport (800,000 SF), to Canopy Growth's facility in Southeast Edmonton (160,000 SF), to the Freedom Cannabis facility in Acheson (100,000 SF), vacant industrial space is being absorbed and new facilities constructed for this fast approaching new industry.
Aphria medical marijuana greenhouse
Edmonton has become a boom town for this market for a variety of reasons, most notably due to the unfavorable economic conditions that have been facing our province for the past three years. Edmonton went through the perfect storm in late 2014/early 2015 consisting of a new Liberal federal government, a new NDP provincial government, and the rapid and steep decline in global oil prices, all of which combined to create a glut of vacant property, most notably in the industrial asset class for the Edmonton region. The increased vacancy, particularly in large (often energy specific) facilities, forced down the lease and sale rates from record highs to new lows, which obviously was an enticing feature for cannabis operators who had begun to formulate and look for commercial space. Additionally, due to the climate conditions in Canada, these user groups must seek out enclosed facilities for their growing and distributing operations, unlike companies based out of warmer climates such as California. This ensures commercial space is absorbed from what currently exists, or is built on undeveloped land in our market.
Numerous reports out of USA have shown that in states where marijuana has been legalized, the cannabis industry comprises about 3.0% of the total industrial space; for reference, in Edmonton this industry is currently occupying less than 1.0% of available industrial space, so presumably there's still ample room to grow (NAIOP). Also of note, in Denver between 2009 - 2014 (affirmative vote to legalize occurred in 2012), 36% of the new industrial tenants to the market were marijuana businesses (nytimes). This stat resonates heavily with me because it is so critical to our market in Edmonton and greater Alberta. We're desperately in need of new industry classes and diversification from our heavily affected energy market.
Aurora Sky rendering - Edmonton International Airport (800,000 SF new construction, expected completion 2018)
On the retail side, there is also a shift that's happening with dispensary groups attempting to hedge the market and find storefront space to sell the product when it legally comes to market. In our case study City of Denver, there are now over 200 retail stores which correlates to five times as many retail marijuana stores as stand-alone Starbucks shops (nytimes). Many of the Landlords for these properties are also getting the perk of charging two to three times the market lease rate due to the nature and perception of the Tenant group.
Overall, from the perch I sit on, the effects that this industry has had on our commercial real estate market so far have been positive and substantial. I haven't seen the negative reception that many thought may happen, but instead have seen property owners shift their thinking to welcome and work with these groups. I think we have a very pro market economy for this growing industry, and an appetite for change, all of which bode well for the strength of Edmonton in continuing to attract cannabis business.