by Berekk Blackwell
In July 2021, Connecticut became the 18th state in the U.S. to legalize adult-use cannabis and early this year, on Feb. 3, applications were opened for a retail license lottery. The 90-day application window will close in early May with retail sales expected to begin in late 2022.
While many legalized states require a plan for where a retail property will be located in the application process, Connecticut does not require any site control for their retail lottery. Despite this allowance, there will be a tight window for license winners to develop a plan, so securing real estate prior to the lottery is highly advised. According to CT.gov, the program encourages applicants to submit thorough and complete applications such as having a compliant and properly zoned property in place.
Most markets with cannabis license lotteries become highly saturated by not only those applying in state, but also outside influences. Having a commercial real estate strategy is pertinent in order to find the best location before others claim a stake.
To complicate things even further, there are over 40,000 localities across the U.S., each with their own sets of zoning codes and permitting nuances. In Connecticut, there are currently only 13 municipalities that have approved zoning for recreational retail cannabis licenses. In the current lottery round, 12 recreational retail licenses are up for grabs from the state, with half of those being designated to social equity applicants. This makes an already scarce commercial inventory even more insufficient for the competitive applicant pool. Values on available properties in these approved municipalities are heavily increasing in price due to the demand. If an applicant waits until they are awarded a license, they could end up with little leverage with the property owner during a lease negotiation.
Outside of the regular lottery licenses available are social equity licenses. Connecticut is looking to use these specific licenses to “ensure that funds from the adult-use cannabis program are brought back to the communities hit hardest by the ‘war on drugs.’” In order to apply for this type of license, the geographic zone or district of the intended retail must be submitted. Many legalized states have followed suit with similar social equity guidelines.
For standard projects, the core of a real estate development strategy begins with a master plan and development design that meet state cannabis rules and regulations. This could involve required square footage; distance from schools, churches, and other public buildings; and certain security measures built into the design. The real estate team must also ensure there is an equitable title to the property, no hidden debt tied to the property, and enforceable agreements such as lease agreements, vendor contracts, etc.
Connecticut plans to open a second lottery application period in the second half of 2022. Those not chosen in the first round will have another chance to submit an application during this time.
Berekk Blackwell is COO of Zoned Properties.