Microbusiness Real Estate

Michigan Marijuana Microbusiness Real Estate

Finding the right cannabis property is often the most difficult part of starting up a licensed cannabis business in Michigan, which reflects Michigan’s regulatory structure for marijuana businesses. Under the MMFLA and MRTMA, municipalities are given authority to control where Marijuana businesses are allowed to be sited in their municipalities, as well as whether marijuana businesses should be allowed in the first place. 

Unfortunately for Michigan cannabis businesses, most Michigan municipalities have at least initially decided to not to allow cannabis businesses in their borders. For some municipalities, this simply reflects the fact that they do not want marijuana businesses at all, though for some, it’s because they’d rather wait and see other municipalities experiences with marijuana businesses before they decide how and where to allow them. 

Because most municipalities do not allow marijuana establishments, or if they do they allow them only in certain defined areas, there is a limited inventory of marijuana properties. This limited inventory means that Michigan Cannabis Properties are often sold at a substantial premium to their non-marijuana market value, especially with respect to marijuana “provisioning centers” and “retailers.” As a matter of fact, the “marijuana premium” is so high that there are even some Michigan cannabis businesses that focus solely on identifying, licensing, and “flipping” Michigan cannabis properties as their business model.

Michigan Cannabis Real Estate Pricing

While there are many other factors that go into determining the price of a marijuana property, the biggest factor is the type of marijuana operation allowed to be conducted at the property. The “marijuana premium” is the greatest for Michigan dispensaries due to the fact that several deep pocketed operators and property developers are gobbling up as many dispensary properties as they can. This has the practical effect of bidding up the prices of dispensaries several times the property’s previous market value.  While also somewhat true for Michigan cultivation and processing properties, the premium is not nearly as great compared to provisioning centers and retail properties.

So what does this mean for Michigan marijuana microbusinesses, which are both retailers and cultivators? Will Michigan microbusiness properties be priced at a premium similar to retailers, where the marijuana price is often a multiple of the non-cannabis market price, or similar to marijuana growers, where the premium is often 30% to 50% above the “non-marijuana” market price? Or will microbusinesses real estate not have any premium at all due to the fact that deep pocketed operators are mostly shut out of the microbusiness market and cannot bid up the price?

Municipality-by-Municipality Analysis

At the time this article was written, there have only been a handful of Michigan municipalities that have opted in or are in the process of opting in to allow cannabis microbusinesses. Based off these handful of test cases, it has become readily apparent that the cost of microbusiness properties depends on how a municipality decides to regulate and zone microbusinesses. 

The key factor in determining the premium giving to microbusiness properties seems to be whether there is zoning specific to microbusinesses or whether the zoning for microbusinesses overlaps with one or more other cannabis licenses. Another important factor is whether there are limits on the number of microbusinesses a municipality will allow and whether there are limits on the other license types that have their zoning overlap with microbusinesses.

Overlapping Zoning

Using my hometown of Royal Oak’s draft ordinance as an example, Royal Oak is proposing the same zoning for microbusinesses as marijuana provisioning centers and retailers. Royal Oak’s facility-to-facility set back also applies equally to both marijuana retailers / provisioning centers and microbusinesses. Unfortunately for aspiring microbusiness owners, this has the practical effect of mostly pricing them out of the local real estate market as they are unable to pay the same premium as retailer / provisioning center licensees are willing and able to pay. 

Unlike deep-pocketed multi-license operators, most microbusiness owners are small business owners and caregivers that do not have seven figures to spend on property. They simply cannot compete with multi-license operators and deep pocketed developers for real estate. Thus, when a municipality takes the approach of treating microbusinesses the same as marijuana retailers / provisioning centers, the price of microbusiness real estate skyrockets and microbusiness owners get priced out of the real estate market. 

Now let’s assume that Royal Oak decided that they really wanted microbusinesses in their municipality and changed their draft ordinance to allow for microbusiness specific zoning that does not overlap with other license types. If this were the case, then the “marijuana premium” would drop substantially since the property prices would no longer be bid up by multi-license operators and developers in search of dispensary properties. 

While it is likely that there would still be some premium depending on how many properties are eligible, the fact that microbusiness applicants are not able to pay multiples of the market price would necessarily limit any premium given to these properties. The premium would also be limited by the fact that other MRTMA licensees, except consumption lounge and event licensees, are prohibited from having an ownership stake in microbusinesses, as are non-Michigan residents. Since the market for microbusinesses would be driven by a smaller pool of less capitalized buyers, the premium given to these properties would be limited compared to dispensaries. 

Limited Licensing

As noted above, capping the amount of licenses can also have an effect on the cost of microbusiness property, both in terms on the number of microbusinesses allowed but also in turns of the number of other licenses allowed. Taking Lansing as an example, the microbusiness zoning overlaps with both the marijuana dispensary and cultivation zoning but the premium for these properties is limited.

The reason for this is that Lansing capped the number of dispensary and cultivation licenses that it will give out, and will likely have already reached that cap by the time that it starts accepting applications for marijuana microbusinesses. Accordingly, with Lansing having hit its licensing caps, the real estate that was zoned for retail and cultivation will lose the marijuana premium associated with each license type. 

In sum, if the zoning for microbusiness properties overlaps with the zoning for retail / cultivation properties, these properties will reflect the premium given to retail / cultivation properties. If, however, microbusinesses have their own unique zoning or are otherwise not competing with these other licensees for the same properties, then the substantial marijuana premium mostly goes away.

Overcoming Limited Opportunities

In Michigan, municipalities have been slow to allow recreational marijuana establishments within their borders, and many that have done so have not included microbusinesses as part of their opt-in ordinance. Anecdotally, this seems to be because municipalities are unfamiliar with what exactly a microbusiness is, or they want to see how other microbusinesses operate in other places before they allow them. 

Part of the reason for this unfamiliarity is that microbusinesses generally cannot afford to hire expensive lobbyists to educate and persuade municipalities to allow microbusinesses. Microbusiness applicants are mostly forced to be their own lobbyists. While we have had some success in lobbying smaller townships and villages to allow microbusinesses, it is tougher to lobby larger municipalities who have tens of thousands of constituents to answer to.

Truth be told, nearly all municipalities would benefit from allowing microbusinesses compared to retailers. While both license types allow a municipality to share in the excise tax revenue, a municipality gets more “bang for their buck” with microbusinesses since they tend to be smaller operations in terms of revenue and sales but count the same for purposes of splitting up the excise tax.  To illustrate, a small city may have the population and market demand to support three marijuana retailers, or alternatively support five microbusinesses. If a municipality decided to allow five microbusinesses instead of three marijuana retailers, the city would receive 66.7% more revenue by allowing microbusinesses compared to retailers. 

A municipality would further benefit from the fact that the cultivation and processing jobs created by microbusiness sales to consumers would by definition stay in the municipality, but the same is not true for the retailer license. Moreover, microbusinesses tend to attract more local owners compared to retailer licenses, who tend to spend more time and money in their local municipality compared to out-of-state multi-license operators. These advantages make microbusinesses an easier sell compared to other license types, the problem being that most municipalities are simply unaware of these advantages. 

Creating Microbusiness Opportunities

When lobbying municipalities, there is strength in numbers. Oftentimes, when attending planning and city commission meetings, there are over a dozen companies there speaking about marijuana—almost always in the context of allowing retailer and provisioning center licenses. There is usually either one person or more frequently no one there to lobby on behalf of microbusinesses, so it’s no surprise that most municipalities have not allowed them yet. Their voices, if heard at all, are being drowned out by the sea of multi-license cannabis business owners, property developers, and their cannabis brokers and lobbyists.

While we have had some success with respect to persuading smaller townships and villages to give the microbusiness license a chacge, for the reasons explained above, persuading larger cities to allow them is an entirely different animal. Persuading these cities often requires a larger, coordinated effort beyond the capabilities of a single microbusiness owner. 

Microbusiness Action Network

Outside of Lansing and Grand Rapids, and a handful of smaller townships and villages, there are shockingly little microbusiness opportunities to speak of as of the time this article was written. However, this can and will change with time as more municipalities learn about the microbusiness license. Rather than sit around and wait for opportunities to come up, at which time many of the potential properties may already be snapped up by microbusiness owners who are on the front lines of these municipalities, we encourage clients to work to create opportunities themselves. 

Generally speaking, once municipalities are educated on microbusinesses and the benefits they provide to them, municipal officials are open to the idea of allowing microbusinesses in their boundaries. As microbusiness-focused cannabis property brokers and attorneys, we have started working with clients to help create opportunities, though we understand many microbusiness owners do not have the funds to send an attorney or representative to numerous planning and city commission meetings. 

To this end, we recently created the Microbusiness Action Network a free-to-join group whose purpose is to crowdsource our efforts to persuade municipalities to opt in to allow microbusinesses. The idea of the group is to create a community of aspiring microbusiness owners who can work together to create municipal opportunities for themselves and each other. There is no cost to join—all we ask is that you work with your fellow aspiring microbusiness owners to create opportunities on the municipal level. The more voices there are in support of microbusinesses on the municipal level, the more likely the message will get through to municipal leaders and the more microbusiness opportunities will be created. If you are serious about opening up your own microbusiness here in Michigan, we highly encourage you to join this Network . By joining the Network, you will be on the front lines and will be the first to know when there is a municipal opportunity on the horizon, as well as be the first to know where a municipality plans on allowing microbusinesses to go.

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