Cannabis companies are eyeing sites on some of the priciest retail streets in Chicago, including the Magnificent Mile, as they get ready to sell recreational marijuana in Illinois.
Dispensaries have opened in marquee retail spots around the country – like Fifth Avenue in New York and a mile from the Las Vegas strip. Chicago's turn may be next.
Real estate sources say industry players are scouting locations with heavy foot traffic and alongside well-known retailers, and they're doing so well before the city develops rules and regulations for cannabis sales, including amending the current zoning requirements.
If dispensaries end up on the Mag Mile, marijuana sales would bring a new definition of "high street" – the term for the world's top retail streets – at a time when North Michigan Avenue and similar shopping districts around the world are grappling with changes in shopping habits.
A bill signed by Illinois Gov. J.B. Pritzker this summer makes recreational marijuana use legal in Illinois starting Jan. 1, and sets the stage for existing medical dispensaries to expand their physical presence. The 55 medical dispensaries currently operating in in Illinois can apply to sell recreational marijuana at their stores. They also can open a second dispensary.
One opportunity being eyed on the Mag Mile, according to real estate sources, is the former Apple store at 679 N. Michigan Ave.
The space is controlled by Chicago-based Water Tower Realty, a small, local real estate investor, through a long-term ground lease. The multi-level, 30,000-square-foot space has been vacant since Apple moved its Mag Mile flagship south to a new building along the Chicago River in October 2017.
Water Tower Realty did not respond to requests for comment.
The scouting comes as retail landlords face challenges such as empty storefronts and bankruptcies that have pushed down rents. In Chicago, leases for top Mag Mile spaces averaged $450 per square foot in 2018, down from $550 the previous two years, according to Cushman & Wakefield.
Many property owners are rolling out the welcome mat, viewing cannabis as a fast-growing retail concept, said Dan Molnar, a broker at Baum Realty Group who is representing marijuana company Cresco Labs in retail leases in the Chicago area and other cities.
"There are a lot of unknowns, but everybody is trying to be prepared for whatever the city puts forward," he said. "It's going to be highly trafficked areas with both locals and tourists."
However, owners of some of the largest properties, where retail generates a relatively small portion of the building's overall revenue, are taking a more cautious approach, said retail broker John Vance of Stone Real Estate. He's had landlords in and around downtown pass on negotiating leases with marijuana sellers.
"The use is legal, yes, but some people will be turned off by it," he said.
Recreational marijuana is still illegal on the federal level. That brings other regulatory hurdles, including an inability to lease space in a building whose construction loan is from a large, federally insured bank.
Some large commercial brokerages also have restrictions on real estate deals involving cannabis companies.
"It is illegal under federal law to knowingly open, lease, rent, use or maintain property for the manufacturing, storing or distribution of marijuana," employees of Chicago-based Cushman & Wakefield were told in a July email. "As such, our professionals as individuals, and Cushman & Wakefield as a corporation, can both potentially be exposed to criminal as well as civil liability."
Marijuana companies aren't commenting on specific locations in the city where they're negotiating for space. But some, like Cresco, are rolling out clean, brightly designed dispensary concepts, that would fit into Chicago's retail corridors. Cresco's stores will be called Sunnyside.
PharmaCann and Green Thumb Industries, each with plans to open five new Illinois dispensaries, also are implementing dispensary concepts aimed at making shoppers feel welcome and comfortable. Their stores are called Verilife and Rise, respectively.
GTI has almost 30 dispensaries around the country. It is exploring locations for three recreational stores in Chicago and two downstate, said chief strategy officer Jennifer Dooley.
Phoenix-based 4Front Ventures, which owns a dispensary in the South Shore neighborhood, also is looking for a separate recreational dispensary location. President and co-founder Kris Krane declined to say where the company is looking.
"It's pretty competitive out there right now," he said. "A lot of people looking in the same areas."
Without specific zoning rules in place, companies may need to get creative. Tenants could sign leases that are contingent on obtaining city approval, leases that contain buyout clauses or other types of agreements.
"It's a bit of a cart before the horse," said Chuck Taylor, director of operations at Lemont-based Englewood Construction, which has done work for medical and recreational marijuana sellers in several other states. "Anyone looking to be open at the start of January already needs to be working on things like site selection, leasing, engaging an architect and the permitting process."
Regardless of the uncertainties, it's clear that attitudes toward cannabis have changed since Illinois rolled out its medical marijuana program, said Jeremy Unruh, director of public and regulatory affairs at PharmaCann. Unlike with medical sales, the new law allows cities to tax marijuana sales.
"Five years ago, we were relegated to areas where the municipalities wanted to hide us," he said. "Now I don't think that's the case, especially given the fact that 3% of total sales can go to the municipality."