Setting yourself up for a successful medical marijuana business requires more than just savvy business sense and knowledge of the Michigan marijuana industry. As with many retail stores, even well-run marijuana provisioning centers won’t be able to survive without a good location. Based on our experience with helping clients find locations for their Michigan dispensaries, these are our top 6 tips for siting your Michigan Medical Marijuana Dispensary.
HAVE A GOOD BROKER AND LAWYER
While it seem like an easy task, finding a good medical marijuana broker and attorney is not quite as easy as it may seem. With each municipality having its own ordinance, restrictions and requirements, it is imperative that you find a broker who will work with you to find the perfect location for your medical marijuana dispensary.
Likewise, working with a medical marijuana business attorney during this process will pay dividends, as they can help you with the real estate transaction and ensure that the municipal application process runs smoothly. The last thing you want is to invest thousands of dollars into your new retail space, only to have the municipality deny your license application! As a word of caution, many Michigan medical marijuana attorneys do not have a strong background in business or transactional law, as they are generally criminal attorneys by trade. When deciding which attorney to hire, do not be afraid to vet them and ask about their business law experience and familiarity with real estate transactions. Asking these two small questions first can help prevent you from hiring the wrong attorney for your medical marijuana business.
BE AHEAD OF THE GAME
Although it can be time-intensive to lobby a municipality for a medical marijuana ordinance, our firm has helped multiple cannabis businesses enter their ideal prospective market just by being proactive with municipalities. Municipal officials are generally looking for insight on the industry, and they appreciate it when a prospective business owner attends local city council meetings, or is willing to talk with municipal officials about the effect marijuana dispensaries can have on a community. By establishing a relationship with the municipality and engaging in a dialogue about the medical marijuana industry before they even have an ordinance in place, you will be setting yourself up for municipal approval in your perfect business location.
REMEMBER YOU ARE STILL A RETAILER
You might have found a couple of potential locations for your dispensary that meet the local ordinance, but its imperative that you remember to think like a retailer. Yes, the municipal ordinances applicable to medical marijuana business locations are more restrictive compared to most other retailers, but don’t let fewer options drive you to a poor location.
As a medical marijuana retailer, you need to take into consideration the demographics of the area, the foot traffic walking past the storefront, the flow of street traffic, and other factors that may impact sales, such as availability of parking. Consider checking the Annual Average Daily Traffic Maps on Michigan’s Department of Transportation website to see if the location has a significant number of people traveling in the area on a daily basis.
If your location doesn’t generally have people walking by or is located near a busy road, you will likely need to engage in substantial marketing to draw patients to your location.
When it comes to picking a medical marijuana retail space, bigger isn’t always better. Large wide-open sales floors seem great for most retailers, but it can cause major issues for medical marijuana businesses who cannot deduct rent expenses from their taxes. IRS Section 280(E) prohibits a medical marijuana dispensary from deducting rent, utilities, and costs of repairs and maintenance from taxes, as the business is considered to be “trafficking” a controlled substance under federal law. With so few deductions, a smart businessperson needs to consider how to reduce the overall cost of running their business to maintain profitability without the use of business deductions.
You don’t need the best commercial spot in the city if you have good branding and an attractive store layout. You may be better off with a reasonably priced dispensary in a good traffic location that yields stronger net profits, than a large, expensive high traffic store that has high business expenses yielding a lower net profit.
DON’T FOCUS ON ONE PROPERTY
If it is financially feasible, try to take multiple medical marijuana dispensary sites off the market when you first enter the market. This not only makes business sense if you want to open multiple dispensaries, but it also takes locations off the market for competitors. Many municipalities are limiting their municipal licenses not by quota, but by zoning. For instance, instead of saying “we will only give out 5 dispensary licenses”, many municipalities are saying “we will give a municipal license only to businesses in a location that meets these criteria: x, y, z.” By setting strong restrictions in their ordinance, they will effectively limit how many licenses they can give out because eventually all possible zoning-compliant locations will be gone. In locking down multiple locations early, you can ensure that your presence in the local market is stronger and limit the number of other competitors entering your target market.
HAVE AN OUT
If you do find the perfect location for your medical marijuana provisioning center, make sure that you are giving yourself an exit strategy. Plan for contingencies, such as not being given a municipal license or being denied state pre-qualification, even if it seems like you are a lock. If you are signing a lease prior to being awarded a municipal license, try to negotiate for a favorable lease termination clause. The last thing any business owner wants is to be stuck with a piece of real estate for a business venture that can’t get off the ground. While no entrepreneur wants to think about their business venture failing, it is necessary to consider your exit strategies before you commit to a retail space.
Similarly, if you are looking to purchase a building, a well-crafted due diligence period into your purchase agreement can be worth its weight in gold. You can either do a time-based period that extends beyond any potential chokepoint—e.g. municipal licensing—or a zoning or municipal approval contingency to ensure you aren’t denied and left holding the bag. Of course, many landlords will not want to lock up their property without getting something in return. You may need to give a little to get the due diligence terms you like, including sacrificing part of the deposit, increasing the deposit, or even paying a reduced rent during the due diligence period.
Reviewing a commercial lease or purchase agreement for these small details can make or break your business plan, and again, that’s where a medical marijuana business attorney can help ensure you have a way out before you even dive in. For more information on siting your Michigan dispensary, contact the attorneys at Scott F. Roberts Law.