Go big or go home
By: J. David Chapman/October 18, 2018
It did not take a Ph.D. in real estate to predict the effect of passage of State Question 788, which legalized medical marijuana, on retail real estate in Oklahoma. I did so in this column in June, comparing our situation to that of Colorado.
In my previous article, I predicted a significant increase in demand for industrial and retail real estate. In the first few months after passage of the legislation, we have seen marijuana dispensary operations paying over market and over asking price for retail locations, frustrating other non-marijuana-based business owners looking for space.
While this has provided a significant shot in the arm to retail building owners, the old biblical adage “live by the sword, die by the sword” comes to mind. I don’t think any of us can predict how many dispensaries are needed to satisfy the demand and provide a valuable service to those needing the medical help, but many states have developed formulas and policies for how many will be allowed.
Some, like Arkansas, place a hard cap on the number of dispensaries that will be licensed. Arizona has a cap, but it is based on the number of traditional pharmacies that are operating statewide, with the proportion of dispensaries to pharmacies not exceeding 1 to 10. Delaware has chosen to limit the number of dispensaries by implementing a cost barrier charging a $40,000 licensing fee and has only one currently.
Oklahoma, on the other hand, has chosen a market approach, and has no limit and one of the lowest costs at $2,500 for a license. This survival-of-the-fittest approach sets up competition between dispensaries that could benefit medical-marijuana patients; however, it could be problematic for building owners leasing to dispensaries if there proves to be excess supply.
Another adage of “go big or go home” also comes to mind. Oklahoma implemented our marijuana legislation in a big way – doing so quicker than any other state and licensing more dispensary licenses quicker than any other state. Currently, with more coming online, we have a patient-to-dispensary ratio of about 11:1. You have seen them – 469 dispensaries approved to date, and only 5,000 residents have received their license to purchase medical marijuana. The numbers will increase, but the dispensary number may increase as well.
J. David Chapman is an associate professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).