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The interior of Cresco Labs LLC’s new commercial growing facility in Marshall. The interior of Cresco Labs LLC’s new commercial growing facility in Marshall. COURTESY PHOTO

Commercial cannabis growing operations cut into industrial real estate supply

BY Sunday, October 10, 2021 04:15pm

The thriving and consistently crowded industrial real estate market has recently had to accommodate an increasing number of cannabis growing and processing plants in the municipalities that allow them.

However, in many cases, cannabis construction in these municipalities has led to the multi-million-dollar rehabilitation of obsolete industrial facilities.

Chicago-based Cresco Labs LLC had its first harvest two weeks ago at its newly opened, 110,000-square-foot facility at 210 Oliver Drive in Marshall, the former site of a Win Schuler and Campbell Soup Co. factory. 

“A ton goes into (choosing the location) because the building has to function as an indoor horticultural facility, so it’s unique in that it has to have facilities for horticulture, product manufacturing, a distribution hub with warehousing, and you need office space, too,” Cresco Labs CEO and co-founder Charlie Bachtell told MiBiz

Securing the vertically integrated cannabis company’s first Michigan location took nearly four years and a collaboration with local investors, Bachtell said. The Southwest Michigan location was appealing in part because it is a short drive from the company’s Chicago headquarters, he said.

At some point, Cresco plans to get into the retail side of cannabis in Michigan, whether that means opening its own dispensary or acquiring existing locations, Bachtell said. 

“There are groups that are well-established and buying up smaller (retail and industrial) locations that couldn’t make it,” said Stephanie Goodman, CEO and founder of Waterford Township-based Bricks + Mortar Group LLC real estate development company. “We’re also seeing larger investment firms moving in and seeing leasebacks at some locations.”

Among the recent cannabis M&A deals, Cloud Cannabis Co. in early September acquired a 70,000-square-foot commercial grow facility in Kalamazoo Township from cannabis company KKind. The acquisition was the next step for Cloud cannabis to become fully vertical. 

Rehabbing properties

Meanwhile, long construction lead times and high materials costs are causing larger operators to buy up properties with a building on it that can be redeveloped, or existing cannabis businesses, said Bill Bussey, senior broker for retail at Bradley Co. 

“It’s several million dollars to build out a grow facility,” Bussey said. “If you find one that’s already up and running and has customers already, that puts you in business a lot sooner than building from scratch.”

Also, municipalities are increasingly zoning dilapidated buildings and stretches of industrial property for cannabis uses to improve parts of the city. 

“Muskegon treated it kind of how cities did with opportunity zones,” Bussey said. “They picked areas they have been trying to redevelop for years, and it’s really paying off. They are renovating and rejuvenating whole areas of the city because of that.”

Over the past year, Grand Rapids had six industrial properties in various stages of redevelopment for commercial cannabis growing operators. Company executives have said that while new tax revenue from retail sales garners public attention, rehabbing industrial properties has been an often overlooked positive aspect of the industry.

“A lot of municipalities say ‘no’ at first and then when they see the sky doesn’t fall and there are great benefits from a community, workforce and revenue standpoint, they start to get more and more comfortable with opting in,” Bachtell said.

Bricks + Mortar Group’s transaction rate tends to trend upward when a new municipality has opted in to allowing recreational uses, Goodman said. 

“We’ve done about 140 transactions over the past couple years, and it increases as a city opts in and we’ll have a flurry of activity,” Goodman said.

The overwhelming majority of deals Bricks + Mortar Group works on are located on the east side of the state, with only about 10 to 15 sales in West Michigan, Goodman said. 

“The west side was slower to opt in, but there are municipalities opting in,” Goodman said. “It is also more densely populated in the Detroit area. We have more property available in Muskegon, but it’s been a lot slower, and when we list one in Detroit it’s gone in two days.” 

As well, Goodman hopes to see an increase in facilities that lease industrial space to cannabis growers. These property owners can still charge more per square foot than typical industrial uses, but it also could remove barriers for companies that couldn’t afford their own building.

There is a big need for facilities for lease, as a lot of people might be getting cut out of the industry because they are not able to get into a space,” Goodman said.

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