In a quiet industrial building invisibly nondescript in southwest Santa Rosa, blue-gloved workers in white laboratory coats pre-roll joints with high quality cannabis buds. Each carries the Marley Natural label founded by the legendary reggae artist’s estate. Under a constant 67-degree thermostat, its white walls are an international pot investment firm’s entry into California’s medical marijuana industry.
Privateer Holdings, Seattle-based self-proclaimed first private equity firm focusing exclusively on cannabis, considered basing its headquarters nearer Southern California’s hungry consumer market. However, last year the company chose Santa Rosa, renting a suite just off Sebastopol Road on Corporate Center Parkway with 23,000 square-feet of space.
Christian Groh, partner and founder of Privateer Holdings, explained this choice, “In some of the desert cities in Southern California, there are a ton of benefits offered to businesses there, but Santa Rosa’s rules are well thought out. It is a good community close to strategically significant places.” The firm’s arrival in town is an economic side effect of marijuana legalization.
The economic boom unleashed by legalized weed is turning Santa Rosa’s empty warehouses into thriving businesses. The activity is driving up property values, both real estate and commercial leasing, in zones permitting the newly regulated market to establish itself.
Cannabusinesses have been busy in Santa Rosa since last year, with at least 18 transactions made on industry property worth over $40 million. As the industry grows, vacant buildings are becoming rarer within the city, and in industrial areas, vacancy rates have been declining over the last three years from 12 percent to just five percent.
Property is changing hands, including well-known establishments like T&B Sports and the Sonoma County Farm Bureau. Sellers are often receiving twice what they initially paid, sometimes more. Proprietors unwilling to have cannabusinesses as tenants in the past are now welcoming them in droves, frequently at twice the average price.
Santa Rosa’s property boom is happening for many reasons. For starters, the city has 10.7 million square feet of warehousing space. It also has the lowest tax rates in the state and is only two hours from Emerald Triangle, the state’s weed paradise. Groh described his company’s search for a suitable location as heavily reliant on finding the place with the clearest, business-friendliest laws.
Early last year, the city started allowing and regulating all aspects of the marijuana industry, from cultivation to production and transportation. City leaders say the strategy will destroy black market opportunities despite making Santa Rosa a sought after city for cannabusinesses to open shop. The secret is getting the right foot in the door.
Joe Rogoway, attorney at law for the cannabis industry, says that he cautions clients looking to operate from Santa Rosa of the $2 million entry barrier. The founder of the Rogoway Law Group said, “There are not that many buildings out there. It is a finite supply. It is like a feeding frenzy.” Currently, city-licensed cannabusinesses occupy approximately three percent of the city’s available industrial space.
If the 33 businesses still waiting for their operating licenses succeed in getting them, that figure will jump to nearly eight percent. However, the idea that Santa Rosa’s industrial parks will belong to the marijuana industry is untrue, according to the city’s economic development manager, Raissa de la Rosa. There are still more legal, medical, automotive and construction outfits there than there are pot firms.
De la Rosa said, “It is affecting pricing at the moment, but the idea that they are scooping up every property, which is more of a perception. We have information that they are not.” Still, property owners are taking advantage of the selling opportunities cannabusinesses are offering them. The Sonoma County Farm Bureau sold for $1.6 billion, and the owner of T&B Sports walked off with $4.25 million.
The Farm Bureau gave the new owners keys to its Piner Road headquarters back in January, operators of a medical marijuana dispensary in Marin County expanding to Sonoma. West Steele Lane’s T&B Sports also sold in January, to a real estate investment trust in Southern California. Its new owners finance commercial properties, and they resold it for $4.75 million in July, making $500,000 in seven months.
According to its property listing online, the building already has a city-issued minor use license for marijuana production and onsite laboratory testing. Steve Monahan, a real estate acquisitions manager from San Rafael, spent nearly $7 million on two city warehouses for cultivating marijuana indoors. In July, Monahan paid $3.7 million for a 20,000-square-foot warehouse on Industrial Drive, which was double what the sellers paid for it back in 2015.
The old Cokas Diko furniture store on Industrial Drive sold twice in just two months last year, and the 35 percent sales price increase demonstrates the escalating value of properties in areas zoned for marijuana operations. That property sold in September for $1.38 million, and then the day after voters approved Proposition 64 for adult use, it sold again for $1.85 million, which is an increase of 35 percent.
Then there is a local nonprofit known in the area. It operates four different thrift stores and provides people in need with housing. Last year, it sold its Bluebell Drive warehouse for $3.8 million to Kanaplya, a marijuana business, which was $1.25 million more than it paid for the property less than 24 months ago. Initially, nonprofit executive director, Dana Bryant, did not want to sell to a cannabis company.
Dana and her husband, Michael, are both in recovery from addictions. They are also deeply religious, and believe the gateway theory that pot leads to harder drug use, such as heroin and meth. However, a real estate broker approached and obligated them to put the offer before the board. Dana and Michael sold reluctantly, but the sale enabled the nonprofit to expand its reach into Oregon.
Michael Perlman, the convincing buyer, said that he and his wife chose to relocate with their family to Santa Rosa from Hollywood. He has been cultivating cannabis for medical dispensaries for two decades already and chose Santa Rosa after searching California for the most suitable premises, specifically in a city with weed-friendly policies for businesses.
“We paid probably way more than it is worth, but I guess the market dictates,” Perlman said. Back in 2015 at HempCon San Francisco, Perlman’s Kosher Jack buds won first place for “Best Sativa.” He echoes the sentiments of all the cannabusinesses entering Santa Rosa’s industrial buildings, “Overall, we are very happy with everything.” Santa Rosa looks set to become a hub of high-quality California strains.