A Safe Space for Cannabis: An Interview with Canna-Hub CEO, Tim McGraw

Tell me a little bit about how you became involved with Cannabis? Why did you give up your operation in Illinois?

It became evident that Illinois was going to pass some legislation, so I started getting involved in the lobbying and working on the language that would end up being the Illinois law. Then in 2014 I was awarded two of Illinois’ twenty-one licenses to manufacture, cultivate, and transport cannabis.Then about two years ago I left Illinois because I saw the opportunity to apply my experience in real estate development and finance with my experience running the largest cannabis operations in the state of Illinois.

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The Canna-Hub Model

Can you explain the Canna-Hub business park concept? Canna-Hub builds cannabis business parks that are zoned for twenty of the 24 California license types…so the entire value chain including 3rd party testing is on site. They are communities. Our developments save operators – our tenants – millions of dollars per year. How did you come up with the Canna-Hub model? It was just me looking at the California market. I knew there was an opportunity to apply what I’d done before. Two-thirds of the cities in California have a ban in place, and I saw an opportunity to work with these small towns to rewrite their ordinances. Now these cities are seeing an insane economic impact, and it was really just the perfect confluence of things: my experience, the market in California, and the timing was right, so I decided to move the family out West. What are the biggest challenges/drawbacks when an individual or group try to find appropriate real estate for their cannabis business? A lot of it is timing and finding the right community partners. Outside of that you have environmental concerns, conditional use permits, development agreements. It’s a lot of work that needs to be done in order to have a piece property that even allows for cannabis. We’ve cut through all of that already on our projects, so there’s really no quicker way to get to market than occupying one of our parks. How is Canna-Hub able to secure the “lowest local permit fees in CA?” A lot of it just has to do with track record and level of sophistication. Having a track record where they can call and check on you with mayors and city councils, seeing that you’re legit goes a long way. So the fact that I was a known commodity in the industry was helpful in securing fees that were favorable to our tenants. Any plans to take this model outside of California? Not in exactly the same format, but we are looking at opportunities in Canada and other states, but they’re not on the same scale as the CA operations. There’s either a limited number of licenses or there’s a limited market size. How have the communities you’ve worked in reacted to the work you do in cannabis friendly real estate? Any push back? Every city that I’ve built a facility in has had zero issues, but has enjoyed job creation and more money in their coffers. The people that rally against cannabis usually have a bone to pick because they’re losing money in a competing industry. If you like locking people up, or you like selling them alcohol or highly addictive pills, that’s the only opposition.

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Views on the Industry

Are there any drawbacks to multiple cannabis businesses being close to one another? For example, multiple dispensaries sharing a customer base seems like it would cut into the bottom line. Is there any truth to this in your opinion? We don’t have dispensaries on site just for security reasons. We see the opposite actually, with brands working together and cooperating. As hobbyist growing increases with legalization, do you expect a negative financial impact on professional cannabis businesses? No, you don’t see the alcohol companies worrying about home brewers. A few people growing at home isn’t competition for the commercial market. What financial impact to you foresee if cannabis is legalized at the federal level? Even if it becomes federally legalized, it doesn’t change the fact that states have rights and they can pass laws against it if they want. So rescheduling, descheduling, even legalizing cannabis won’t create interstate commerce overnight. You will see a huge shift in banking and general access, but interstate commerce isn’t something you’ll see right away. What do you predict for the future regarding cannabis friendly real estate? The market demand is still very high, so it’s not saturated at all at this point…so we think we sit in a really good place long term as we continue to build our portfolio.

I was actually thinking about this the other day, what my origin story was, how it evolved, and it’s kind of hard to put my finger on, but sometime in 2012 I made my first trip out to Colorado, and very quickly after that it became evident that Illinois was going to pass some legislation, so I started getting involved in the lobbying and working on the language that would end up being the Illinois law. Later, in 2014, I was awarded two of Illinois’ twenty-one licenses to manufacture, cultivate, and transport cannabis. Then about two years ago I left Illinois because I saw the opportunity to apply my experience in real estate development and finance with my experience running the largest cannabis operations in the state. Apply that strategy to the largest cannabis market in the world out here in CA – There are 39 million residents and it’s going to be a $6 billion market by 2020, so it’s really the perfect market for what we do: build cannabis business parks.

Canna-Hub builds cannabis business parks that are zoned for twenty of the twenty-four California license types – tissue culture, nursery cultivation, both indoor and greenhouse, manufacturing, solvents, distribution, transportation – so the entire value chain including 3rd party testing is on site. They are communities, and there’s a huge amount of savings realized by not having to leave the park for any reason. You save money there, and additionally the operators save money because they aren’t paying a local revenue tax or gross sales tax. The average local or county tax state-wide is 7.6. Our developments, all two million square feet of Canna-Hub operations have no revenue tax, and that saves operators – our tenants – millions of dollars per year. So it’s silly quite frankly for them to locate anywhere else.

It wasn’t that inspired frankly, it was just me looking at the California market. It’s been legal there since 1996, but it’s been the wild west that entire time. So when I saw this very inclusive California law was going to pass – still regulated, but with no limit to the number of licenses – I knew there was an opportunity to apply what I’d done before. Now, in order to even apply for a license in California you have to prove that your property is zoned for that specific purpose. Whether it’s distribution, manufacture, or cultivation, your zoning ordinance has to allow for that. Add to that the fact that two-thirds of the cities in California have a ban in place, and I saw an opportunity to work with these small towns the way I had in Illinois and other states to rewrite their ordinances. Now these cities are seeing an insane economic impact: hundreds, and in some cases over one thousand new jobs, in addition to millions of dollars in permit fees annually going into their coffers. In some cases this doubles their yearly budget. That’s significant and historic for these cities. So it was really just the perfect confluence of things: my experience, the market in California, and the timing was right, so I decided to move the family out West.

I’ve experienced all of them because I’ve been through it so many times. A lot of it is timing and finding the right community partners. Outside of that you have environmental concerns, conditional use permits, development agreements; it’s a lot of work that needs to be done in order to have a piece property that even allows for cannabis, let alone to start building. We’ve cut through all of that already on our projects, so there’s really no quicker way to get to market than occupying one of our parks. There are a lot of potential hurdles, and a lot of it’s financial. It takes a long time and a lot of money to go through this process; there are legal fees and a lot of manpower required. A lot of people underestimate it. They think they just go into a space and start growing. It’s not that simple.

A lot of it just has to do with track record and level of sophistication. I went and met with these cities, and I wasn’t the first developer to approach them, they had met with several, but they saw this was not my first rodeo. Development and construction inside the cannabis industry is far more difficult than anybody knows. From infrastructure, the sophistication and complexity of cannabis operations are way more than anyone understands and dealing with these small towns, politically and otherwise, is something that having a track record where they can call and check on you with mayors and city councils – seeing that you’re legit goes a long way. So the fact that I was a known commodity in the industry was helpful in securing zoning ordinances that were favorable to our tenants.

Not in exactly the same format, but we are looking at opportunities in Canada and other states, but they’re not on the same scale as the CA operations. There’s either a limited number of licenses or there’s a limited market size. Our focus is on California for business parks right now. Outside of the state we’re doing some sale lease backs, buying existing facilities from operators to free up some capital for them.

Every city that I’ve built a facility in has had zero issues, but has enjoyed job creation and more money in their coffers. They’ve seen huge economic stimulus, they see social impacts because now they have more money to provide better services to their community. So, no push back, not from communities because there’s really no downside. When cities see there is no boogeyman, when they realize there won’t be people outside picketing them, they realize we are the majority these days. Meaning that the majority of Americans, nearly 70%, support legalized or decriminalized cannabis. The people that rally against cannabis usually have a bone to pick because they’re losing money in a competing industry. Whether it’s pharmaceuticals or alcohol, 99% of the naysayers are tied to those two industries – that or the industrial prison complex. If you like locking people up, or you like selling them alcohol or highly addictive pills, if anything threatens that, they’re going to fight it. That’s the only opposition. Politically, at the state level and otherwise, the only people you see lobbying against cannabis bills are either tied to the police union, the corrections officers union, pharmaceuticals, or alcohol. That’s where the money comes from to fight Cannabis. It’s not a grassroots movement.

No. We’re mainly manufacturing, everything but retail, cultivation through distribution. We don’t have dispensaries on site just for security reasons. So there’s no retail competition on our campuses. We see the opposite actually with brands working together and cooperating.

No, none. Growing cannabis is harder than making beer and you don’t see the alcohol companies worrying about home brewers. The consistency, the quality, the 3rd party testing that you get through a regulated system far outweighs growing a few plants at home. A few people growing at home isn’t competition for the commercial market.

We don’t expect thatto happen. Even if it becomes federally legalized, it doesn’t change the fact that states have rights and they can pass laws against it if they want. So rescheduling, descheduling, even legalizing cannabis won’t create interstate commerce overnight. Until it’s legal in nearly every state and interstate commerce is possible, that’s not going to happen. It will still be relegated to the states. You will see a huge shift in banking and general access within the states that already have a law in place, but interstate commerce isn’t something you’ll see right away.

There will be a slow trickle of cities around the country that will start accepting it, and early movers have a large advantage over those that start a couple years from now. The market demand is still very high, so it’s not saturated at all at this point, and operators are going to locate where they can save on taxes and keep the most amount of money, so we think we sit in a really good place long term as we continue to build our portfolio.