March 31, 2011—Tucson area real estate limited for medical marijuana operations

By Patrick McNamara

INSIDE TUCSON BUSINESS

March 31, 2011

With the rules that govern Arizona’s burgeoning medical marijuana industry finalized, interest in opening a qualified dispensary is high.

But finding available space for a dispensary or cultivation operation in the Tucson region could prove a challenge.

“The zoning restrictions are going to be a potential barrier to entry,” said Andrew Myers, spokesman for the Arizona Medical Marijuana Policy Project. “It’s very difficult right now to find a properly zoned piece of real estate.”

Following passage of Arizona’s medical marijuana initiative in November, local governments have adopted numerous zoning regulations to codify where marijuana industry businesses could locate.

Adopted zoning ordinances throughout the Tucson region all relegate marijuana dispensaries to commercially zoned areas.
Simailar restrictions in Pima County and Oro Valley require 1,000-foot setbacks from schools, churches, parks, libraries and substance abuse facilities.

Dispensaries also must be 2,000 feet from other dispensaries.

In unincorporated areas of Pima County, where dispensaries have to be in CB-2 zoned areas, that leaves but a handful of primarily rural locations where dispensaries could open, according to county documents.

Those include a few sites along Interstate 10 and Benson Highway near Swan Road, some Interstate 19 frontage south of Sahuarita and a few sites along Anway Road in Avra Valley.
A few other pockets of possible sites dot the regional map on the northwest side.

Myers said the imposition of such limitations, particularly those in Pima County, could overstep the bounds of the law voters passed.

“It’s not what we would call reasonable zoning regulation,” Myers said.

Linda Morales, with the Planning Center, said few other types of businesses have been subjected to such strict zoning regulations.

“This is the only thing with such restrictions,” Morales said.

The only parallels she could find were adult-themed businesses and blood plasma donation centers.

Added to the potential difficulty in finding suitable facilities, those who own property in some of the sites identified as suitable for medical marijuana dispensaries have begun to meet the increased demand accordingly with higher asking prices.

“It’s highly competitive right now,” Morales said. “I’m hearing about bidding wars.”

Morales said the Planning Center has seen heavy interest from people eager to get into the medical marijuana business. She’s drawn up some proprietary maps identifying suitable locations for clients.

Most of the possible dispensary locations that meet setback requirements could be found in the Northwest and near the interstates.

On top of local restrictions, the state would allow only a limited number of dispensaries. Right now, the total number would be 120.

The Arizona Department of Health Services had previously divided the state up into Community Health Analysis Areas (CHAA) to track cancer statistics. State rules would allow one dispensary for each one of the CHAAs, in the Tucson region that totals about 13 dispensaries.

Steve Cohen with PICOR Commercial Real Estate, said the problem isn’t necessarily one of available real estate.

“There’s a pretty significant amount of property available,” Cohen said.

He said talk of limited space could be more the result of some property owners’ unwillingness to lease commercial space to medical marijuana dispensaries.

For example, Tucson based commercial real estate company Larsen Baker has said it wouldn’t lease space to dispensaries, citing concerns that the operations could negatively impact neighboring businesses.

Interestingly, Myers also has concerns that dispensaries could become a nuisance to businesses nearby, but for significantly different reasons.

He said local governments’ efforts to push dispensaries to the fringes, coupled with state regulations that limit the ultimate number of dispensaries allowed, could create a situation where marijuana-based businesses create more traffic in an area than what was intended.

Despite concerns with some local zoning efforts, Myers said the hurdles put before dispensaries would ultimately benefit their communities.

“It requires a level of sophistication among applicants,” he said. That should weed out any applicants unqualified to run a dispensary, he said.

Even with the potential difficulties dispensaries face in starting up, the efforts could payoff.

A recent study of medical marijuana markets estimates that sales could reach more than $1.7 billion nationwide, according to See Change Strategy, LLC.

The majority of sales have been in two states, California and Colorado, according to the study. California alone accounts for more than $1 billion in sales.

Currently, seven states have active medical marijuana markets with five others, including Arizona, set to begin this year.

A company news release said medical marijuana sales will rival Viagra this year.

Myers said dispensaries in Arizona likely would not be the highly lucrative ventures that have flourished in California, because the law here requires the operations to be run by non-profit organizations.

“Do I think anyone is going to get retirement wealthy off these,” Myers said. “No, I don’t.”

Contact reporter Patrick McNamara at [email protected] or (520) 295-4259