Corona coming for your real estate

No, this is not the beginning of a bar joke and no you do not need to drink before answering!  Both Corona and Coca-Cola will drastically alter commercial real estate throughout Colorado.  Constellation brands (owner of Corona and various other spirits) announced a large stake in Canopy, a marijuana company in Canada, to begin making marijuana infused beverages.  The Coca-Cola company also announced it was interested in infused beverages.  What does this mean for real estate?  Why are these announcements so important?  Will one of these companies become the “gallo” of the marijuana industry?

Corporate America coming

Both Constellation and Coca Cola are multibillion-dollar companies that will put substantial dollars towards establishing a “first mover” advantage.  This influx of dollars will radically change the “mom/pop” culture of the industry.  Think of what happened to the corner hardware store after Home Depot and Lowes rolled out.  Most smaller independent hardware stores have closed.  The same will happen in the marijuana industry.  If these two companies are making a bet in the space, look for countless others to follow suit

Consolidation

With corporate America now engaged in the Cannabis industry, look for continued consolidation.  To survive businesses will either mass produce or become niche players.  This is similar to how the wine or craft beer industry has evolved.  For example, Gallo winery has almost a 23% market share.  The top six wine producers account for almost 60% of all wine sales (wine folly).  The cannabis industry will look eerily like the wine industry in the not so distant future.

Commoditization

The entrance of corporate America will lead to the commoditization of the Cannabis industry.  As larger players enter, volumes should increase while at the same time prices will drop.  It is unlikely that Constellation could find enough Marijuana manufactured indoors in a controlled environment to meet their needs.  They will scale the business with outdoor grows to inexpensively produce the raw materials for their product.  This will force prices into a freefall as the “commoditization” of the product intensifies.

Real estate woes

As corporate America continues to plow into the Cannabis industry, real estate will be drastically altered. There are three distinct impacts:

1.       Indoor grows:  Indoor grows will not be profitable as prices continue to decline.  Many of these growing operations will be mothballed.  This is where the largest impacts will be in real estate.

2.       Retail Operations: Retail operations should be okay in the short term as I see Cannabis evolving like liquor stores where it is a specialty store.  But, there will be consolidation on the retail side eventually and you will see large chains in many markets (like McDonalds or Wendy’s on the food side). 

3.       Manufacturing: The manufacturing of oils/products should do better than the grow side. There will be a continued demand for oils/finished products and the specialized locations/equipment for these processes.  You will see consolidation on the manufacturing side as larger players either build their own processing capabilities (like a bottling plant for wine) or buy up smaller players.

Constellation and Coca-Cola are just the beginning of a large transformation in the Cannabis industry.  The impacts are already starting to flow through the real estate industry with consolidation.  Prices of Cannabis and real estate will continue to adapt to the changing corporate structure. 

Resources/ Additional Reading

1.       http://fortune.com/2017/10/30/constellation-brands-cannabis-canopy-growth/

2.       https://money.cnn.com/2018/09/17/news/companies/coca-cola-cannabis/index.html

3.       https://winefolly.com/update/family-gallo-wine-brands/

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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

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