As the legal retail sale of recreational cannabis becomes a reality, Avison Young has developed a request-for-qualifications (RFQ) framework for landlords who want to determine whether this new line of retailers is a good fit for their properties.
Given that most landlords have already made decisions about retail cannabis tenants – with limited and imperfect information – the market will rebalance as the industry matures, the company says.
“Our discussions with landlords about the cannabis sector initially focused on their natural apprehensions, given the stigma surrounding what was historically a banned product,” says James Heaps, a vice-president based in Avison Young’s Calgary office. “We began an education process more than six months ago to help landlords understand how they will be affected by federal, provincial and municipal motivations and frameworks for the legalization of recreational cannabis.
“We developed a RFQ process to educate, vet and assist landlords in selecting prospective retail cannabis tenants. As a result, landlords, and their existing tenants, are realizing the potential benefits of working with credible retail cannabis operators and the overall potential of the recreational-cannabis industry. Now that the federal government has approved the legal sale of recreational cannabis, and the competition for retail cannabis tenants is likely to ramp up as a result, the RFQ has taken on greater importance.”
Avison Young says the RFQ can also aid prospective retail cannabis operators in developing a suitable business plan to pitch their businesses to landlords.
Heaps adds: “Although Canada’s retail cannabis industry has engaged in a considerable amount of leasing activity to date, the sector will continue to evolve – and leading retailers will emerge. Once legal retail cannabis sales commence in October, industry leaders will likely expand by merging with and acquiring other companies. This activity will spark demand for additional retail space, providing landlords with a second opportunity to attract and assess prospective tenants. Thus, landlords will need to ensure that they select retail cannabis tenants who are the best fit for their property operations.”
Susan Thompson, research manager for Avison Young’s Calgary office, says the legalization of recreational cannabis will enhance retail real estate sales and leasing activity in Canada.
“As this report indicates, Canada has a chance to become a global leader in the expansion of retail cannabis operations,” says Thompson. “Also, e-commerce and in-store shopping will be closely watched as the market seeks to determine consumers’ preference levels – and cater to them. As a result, many new and exciting retail cannabis-related real estate opportunities are about to unfold – and investors and landlords need to do their homework on prospective tenants.”