Pot businesses rush to fill Santa Rosa industrial buildings
In a nondescript southwest Santa Rosa industrial building, workers wearing blue gloves and lab coats pack ground-up dried cannabis flowers into pre-rolled joints printed with the Marley Natural label created by the iconic reggae singer's estate.
With the thermostat set at a crisp 67 degrees, the white-walled room is the central chamber of a global cannabis investment firm's foray into California's medical cannabis sector.
Seattle-based Privateer Holdings, which says it's the first private equity firm exclusively focused on marijuana, had considered placing its state headquarters closer to the voracious Southern California consumer market. But the company selected Santa Rosa last year, leasing a 23,000-square-foot suite on Corporate Center Parkway off Sebastopol Road.
“In some of the desert cities in Southern California, there are a ton of benefits offered to businesses there,” said Christian Groh, Privateer Holdings' founder and partner. “But Santa Rosa's rules are well thought out. It's a good community close to strategically significant places.”
The company's arrival in Santa Rosa is part of an economic boom unleashed by the legalization of marijuana, one that is filling vacant warehouses in Santa Rosa and driving up both commercial rents and real estate values in areas allowing the newly regulated industry to take hold.
Since last year, cannabis businesses have spurred at least 18 industrial property transactions in Santa Rosa worth more than $40 million. As the sector expands, empty buildings are becoming harder to find in the city, where vacancy rates in industrial areas have dropped from 12 percent to 5 percent in three years.
Properties - including ones held by well-known entities like the Sonoma County Farm Bureau and T&B Sports - are changing hands with sellers who are sometimes getting double or more what they originally paid. Landlords previously unwilling to rent to cannabis businesses are now opening their doors to potential businesses, often at double the average price.
Cannabis industry players point to several reasons for the boom in Santa Rosa's 10.7 million square feet of industrial space.
The city has the most favorable tax rate in the state and is just a two-hour drive to the cannabis-rich Emerald Triangle, said Groh, describing his firm's dogged search for a location with the clearest, most business-friendly rules. The city stepped forward early last year when it began permitting all levels of the cannabis industry, from manufacturing and distribution to indoor cultivation.
It's a strategy city leaders describe as an effort to root out black market operators rather than lay a welcome mat, but it made Santa Rosa a desirable place for cannabis enterprises to set up shop. The trick is getting in the door.
Joe Rogoway, whose Santa Rosa firm Rogoway Law Group serves the cannabis industry, said he warns clients seeking space in Santa Rosa that there's at least a $2 million barrier to entry.
“There aren't that many buildings out there - it's a finite supply,” Rogoway said. “It's like a feeding frenzy.”
City-approved cannabis operations take up about 3 percent of available industrial space. That number could more than double - to nearly 8 percent - if an additional 33 businesses trying to set up shop under the city's new requirements succeed.
But the perception that the cannabis industry is taking over Santa Rosa's industrial parks is not true, said Raissa de la Rosa, the city's economic development manager. Cannabis businesses are still outnumbered by outfits in the construction, automotive, medical and legal industries, among others, according to city figures.
“It's affecting pricing at the moment, but the idea that they are scooping up every property, that is more of a perception,” de la Rosa said. “We have information that they are not.”
Still, building owners are taking the opportunity to sell.
The Sonoma County Farm Bureau and T&B Sports vacated their longstanding locations, walking away with $1.6 million and $4.25 million deals respectively.
In January, the Farm Bureau handed over the keys to its Piner Road headquarters to the operators of a Marin County medical cannabis dispensary expanding to Sonoma County.
The T&B Sports building on West Steele Lane was sold in January to a Southern California real estate investment trust - a company that owns or finances income-producing real estate - and put back on the market in July for $4.75 million, a $500,000 increase in seven months, according to public records. The online property listing mentions the city already issued a minor use permit for cannabis manufacturing and laboratory testing on site.