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Can legal cannabis revive struggling shopping centers?

September 23, 2021

The meteoric rise of e-commerce in the wake of the COVID-19 pandemic has given U.S. shopping centers something to contend with. Cannabis retail is revitalizing traffic at some shopping centers and in one notable case, it’s serving as a revitalizing agent in a major California regional power center. Cannabis retail might be an unlikely ally for struggling shopping centers and the communities they serve.

The challenges facing shopping malls

The brick-and-mortar retail industry is in a disconcerting state of flux. Traditional shopping centers are getting torn down for residential units and parking spaces. Some of the anchor tenants of yesteryear, such as Sears and Macy’s, are struggling if not shuttering their shopping center locations across the country.

As reported by customer support group Paldesk, dollars spent on e-commerce reached $3.45 billion in 2020, and that number is expected to hit $4.9 billion this year. Furthermore, according to a Shopify survey across 11 markets globally, 84% of consumers shopped online during the pandemic.

However, traditional retail offers a core advantage over e-commerce where there is a greater perceived need for customer guidance and to feel and touch products. In a 2014 Harvard Business Review article called E-Commerce Is Not Eating Retail, it was asserted that it really comes down to the types of goods. In particular, as Paldesk reported, the difference is really about the need for employee contact and the ability to see and touch the product.

As pandemic precautions softened nationwide in May 2020, The Washington Post reported that many U.S. shoppers found themselves returning to shopping centers primarily to interact with other human beings. That social interaction is an essential human need. So while we are certainly in a retail crisis, one core transition strategy is a focus on the retailers that benefit from employee contact and the ability to see and touch the product.

The rise of cannabis retail

The acceptance of legal cannabis retail has dramatically increased in recent years. According to Esquire, 18 states and the District of Columbia had legalized recreational use of cannabis by July, while another 18 states had legalized medical use.

Where cannabis use is permitted, cannabis retail shops have been zoned to industrial areas out of caution and fear of crime and public nuisance. However, those fears have not materialized. According to a recent Cato Institute study, the absence of significant consequences is striking given the sometimes ​dire predictions made by legalization opponents.

While Cato confirms it is too early in the industry’s evolution to form concrete nationwide data, one unavoidable conclusion is that the retail sales of legal cannabis and resulting fiscal impacts are enormous and often greater than projected. California, for example, has few cannabis retail stores in relation to the size of its population. Yet, it realized $5 billion in retail sales in 2020 and is projected to reach $7 billion in 2025, according to MJBizDaily.

Public attitudes about cannabis are changing as well. Nationwide sales increased 67% in 2020, according to a report from Flowhub. More startling is a 2021 Pew Research Center report that found a whopping 91% of American adults believe “marijuana should be legal for recreational or medical use,” even while the nation is deeply politically divided.

Retailers and cities are turning to cannabis for salvation

There is no mistaking that public and political attitudes on cannabis have experienced a seismic shift, and the pandemic seems to have increased that interest significantly. In Surviving Pandemic Budget Shortfalls, Deloitte reported that amidst the pandemic, many communities turned to cannabis tax as a meaningful way to buoy local fiscal revenue.

Los Angeles-based cannabis consultant Hirsh Jain told MJBizDaily that after the November 2020 election, 18 California cities began handing out retail permits, more than 30 local California jurisdictions approved pro-marijuana business ballot measures and another 18 California jurisdictions are preparing to do the same. “These city council members are basically saying, ‘People are driving into neighboring cities, and we’re not getting that tax revenue,’ and you’re seeing an instinctive, ‘We don’t want to lose taxes to other cities,’” said Jain, who tracks cannabis business licensing developments.

Moreover, there is a trend away from placing cannabis retail in industrial zones and instead placing it in full retail zones. San Jose, California’s third largest metro, is anticipated soon to permit its cannabis operators who had been for years operating in an industrial “green zone” to move to full retail zone locations, including shopping centers, according to San Jose Spotlight.

Just north of San Jose, Union City permitted the nation’s first cannabis retail shop in a regional power center called Union Landing. Just off California’s Interstate 880, Union Landing sees 11 million annual visitors and is home to many high-profile national big-box retailers, including Walmart, Petco, Lowes and Best Buy.

The Union Landing cannabis store, named FLOR, opened in mid-July and is already seeing 400-plus customers a day. According to Mike Bitar, chief of retail operations for Grupo Flor, the shop’s proprietor, FLOR is on track to see 1,000 customers a day before year’s end. If FLOR continues on its customer traffic trend, the cannabis shop will see traffic volume on par with prominent national retailers like PetSmart, BevMo, Total Wine & More and Sprouts Farmers Market.

In an NBC News article on the FLOR opening, Gloria Ortega, economic development manager for Union City, said allowing FLOR into Union Landing was not an act of economic desperation but “a recognition that cannabis is here to stay.” Union City Mayor Carol Dutra-Vernaci added that FLOR was a way to revitalize the center because it would generate significant cross-center foot traffic.

“FLOR is not getting a cool reception,” said Bitar. “It’s quite the opposite. Our small regional and local co-tenants say they are getting increased traffic and are thrilled with the cross-promotion opportunities we offer. Our initial concern was the big-box stores, but honestly, they have been far more curious than concerned.”

Bitar claimed this is also true for the customers. “Customers frequently are new to cannabis, so reliance on our sales team guidance and the ability to see and touch products is critical to understanding this new industry.”

Cannabis as a new kind of anchor?

Whether you’re an investor, owner or manager of a shopping center, it’s likely that top of mind is how to revitalize pandemic-impacted retail sales in your center. Depending on your locality, it seems that public support for cannabis retail has never been greater and the evidence seems to show that the fears about crime following such shops is not materializing. Instead, what seems to be following such shops are tremendous fiscal revenues and national chain-level foot traffic that seems, at least in Union Landing, to be lifting all retail co-tenant boats.

Difficult times call for bold ideas. Cannabis retail as a revitalizing agent for your shopping center might be worth serious consideration. “If the landlord, local government and cannabis operator are aligned as they were in Union City, the opportunity for revitalizing high-retail zone traffic is enormous. Curiosity and general interest drive a profound amount of traffic,” said Grupo Flor CEO Gavin Kogan.

If you are interested in exploring the potential for cannabis retail as a revitalizing agent for shopping centers, be sure to register for the Cannabis: The New Anchor? webinar taking place Oct. 5, with industry experts from cannabis commercial development, local government, cannabis retail operations and cannabis regulatory law.