Florida Cannabis Dispensary Report - Q1 2023

Florida's cannabis market has consistently proven to be one of the strongest in the nation, prompting operators to expand their presence in the state. Cannabis dispensaries, a niche market, have long been an intriguing investment opportunity for commercial real estate investors. Over time, these dispensaries have demonstrated resilience against economic downturns and pandemics, resulting in fewer vacancies.

Given past market conditions of low-interest rates and high transaction velocity, in combination with the expansion of cannabis operators in 2022, we have witnessed a significant increase in the number of dispensaries being traded in Florida. However, financing properties with cannabis operators as tenants remains a major obstacle for many investors. Despite this, 1031-exchange buyers making all-cash purchases have increasingly turned to cannabis dispensaries as a reliable asset class.

Q1 2023 Overview

Despite Florida's enduring appeal as a prime real estate market, recent market conditions have resulted in a decline in transaction velocity. According to data from CoStar Group Inc CSGP, during Q1 of 2022, 3,757 properties in Florida traded at or above $500,000, while in Q1 of 2023, only 1,840 properties in the same price range were traded. This represents a substantial year-over-year decline of 51 percent in transaction velocity.

However, in contrast to this decline, cannabis dispensaries in Florida have performed remarkably well as an asset class. In Q1 of 2023, they experienced a comparatively modest decline in transaction velocity of 28 percent, with the average cap rate of a cannabis dispensary trading at 6.50 percent, which is a nine basis point increase from 6.41 percent in Q1 of 2022.

The slowdown in cannabis dispensary transactions can be attributed to several factors. One of the main reasons is that the Federal Reserve has been steadily raising interest rates, leading to a decline in transaction velocity. As a result, fewer 1031 exchange buyers in the market are looking to defer taxes by investing in real estate. Additionally, the current pool of exchange buyers now has a wider range of potential investment options to choose from. This increased competition for capital has made investors more selective, with some choosing to invest in assets they are more familiar with, such as quick-service restaurants or banks, rather than cannabis dispensaries. As a result, cannabis dispensaries, along with other asset classes, are staying on the market for longer periods of time than previously experienced and, in some cases, trading at higher yields.

Notable M&A 2022: Sunburn Acquired MedMen 

One noteworthy acquisition that took place in the Florida cannabis market in 2022 and deserves recognition is the acquisition of all of MedMen's MMNFF Florida assets by Green Sentry Holdings LLC, also known as Sunburn. The acquisition was completed for $63 million and included MedMen's medical marijuana treatment center license, cultivation, and processing facility in Eustis, FL, with 30,000 SF of canopy and 14 dispensaries throughout the state.

Brady Cobb, CEO and Founder of Green Sentry Holdings, is a seasoned operator in the Florida cannabis market. Prior to the acquisition, he had successfully run Bluma Wellness Inc. dba One Plant, which ranked second in per-store sales of smokable flower in Florida, according to  MG magazine. One Plant was eventually acquired by Cresco Labs Inc CRLBF in a $213 million deal.

It will be exciting to observe Sunburn's growth in the industry following this acquisition, given the success of Brady Cobb's previous ventures.

Things To Keep An Eye Out For/Upcoming Events

Rise Express: Circle K has entered into a leasing agreement with Green Thumb Industries Inc GTBIF, also known as Rise, to launch a new chain of stores called RISE Express. The plan is to open 10 stores in the initial roll-out phase in 2023, with GTI and Circle K working collaboratively to bring this concept to fruition. The RISE Express stores will provide a range of cannabis products, such as flower, pre-rolls, vapes, and gummies, to its customers.

Florida Adult-Use Market: The Smart & Safe Florida-sponsored initiative called the Adult Personal Use of Marijuana Ballot is an upcoming development that warrants close attention. If passed, this measure would legalize the possession, purchase, and use of marijuana products and accessories for non-medical purposes by individuals aged 21 or older. Moreover, it would permit existing medical cannabis businesses to sell marijuana products to all adults aged 21 or older. According to the proposed measure, an individual's possession limit for personal use would be three ounces of marijuana, with no more than five grams in the form of concentrate. The initiative has gathered over 600,000 signatures, surpassing the statewide total needed for the Florida Supreme Court to review the measure. The campaign, which received substantial funding from Trulieve Cannabis Corp TCNNF ($25.5 million), will have to collect 891,589 signatures to qualify for the 2024 ballot.

Florida Opening Applications to Award 22 Additional Medical Cannabis Business Licenses: The Florida Office of Medical Marijuana Use and the 22 new medical cannabis business licenses, which will double the number of operators in the state. The application window for these licenses opens on April 24th, 2023, and will close on April 28th, 2023. To apply, applicants will need to pay a non-refundable application fee of $146,000, while the license renewal fee for current operators will increase from $60,000 to more than $1 million.