How to Buy a Cannabis Dispensary - December 2, 2015 - SF Weekly
SF Weekly

How to Buy a Cannabis Dispensary

A curtain made from milk jugs cut into various patterns and shapes hangs in the locked doorway of 70 Second Street, a drab, three-story white brick building a few steps from Market Street in downtown San Francisco. Behind this middle-school-worthy art project is one of San Francisco’s most lucrative business opportunities, advertised by a handwritten sign hanging in a nearby window.

“AVAILABLE BUILDING,” it reads, “WITH MEDICAL CANNABIS DISPENSARY.” Commercial real estate in San Francisco is currently fetching $703 a square foot, according to LoopNet, which would peg this 7,600-square-foot building’s value at a little under $5.4 million. But the asking price for this opportunity is rumored to be $15 million or higher.

John George, the agent for the owner, Ondyn Herschelle of Palo Alto, did not disclose the desired sale price, but confirmed that bids have been north of $10 million — or almost double the going rate for commercial real estate in good condition, which the aging 70 Second Street is not.

However, it does have a dispensary permit. And with its prime location — steps from BART and easily accessed by the Bay Area’s 7.5 million people — 70 Second Street has the potential to be the biggest weed club in the United States.

The problem is that under city law, you’re not supposed to be able to buy and sell city-issued medical cannabis dispensary permits.

But a few savvy cannabis entrepreneurs have figured out how.

To legally sell cannabis in San Francisco, you need approval from the city’s Planning Commission to entitle the land use for the sale of weed, and a medical cannabis dispensary permit from the Department of Public Health.

Unlike liquor licenses, which are bought, sold, and transferred to different locations all the time, city law does not allow the same treatment for dispensary permits.

Getting a DPH permit at the same address transferred to a different operator is easy, though, requiring just a “director’s hearing” with a handful of people in the room. The land use entitlement — which requires running the gauntlet of a public hearing before the Planning Commission, which can be swayed to reject — is the hard part.

Here’s the workaround: Purchase a building with a dispensary. Either evict the dispensary or, for a price (cash under the table) have the dispensary permit transferred to you, the new owner. Then, start selling California’s biggest cash crop.

It’s as simple as that, and much easier than the alternative: finding available real estate in the limited area in which dispensaries are permitted — the city’s “green zone” — and going through a Planning process that can take more than a year, with no guarantee of approval, all while burning money on rent and lawyers.

This solution appears to have been hit upon by an Oakland businessman named Marty Higgins.

Higgins is a real estate developer who owns apartment buildings in the East Bay. (He has also been sued by one of his residential tenants who alleges harassment, but that’s another story, well-documented in the East Bay Express.) Higgins is also the frontman for Harvest, the new dispensary taking over operation of the former Hemp Center at 4811 Geary Boulevard.

After its building was purchased by a limited liability corporation controlled by Higgins — the sale price has not been disclosed, but a transfer tax of $25,500 puts the sale price at roughly $3.5 million — The Hemp Center was evicted earlier this year. Harvest will soon begin operating in The Hemp Center’s old location, having surpassed the headache — and very real risk of disapproval — at the Planning Commission.

Similar tactics have been used at a former dispensary on Tenth Street, where a building was virtually demolished and rebuilt during a “renovation.” (The cannabis dispensary in the now-unrecognizable downstairs, Urban Pharm, will reopen under new management.) And Higgins appears to be involved in another such venture at Bernal Heights Collective at 33 29th Street.

There, the dispensary is also “under new management” — an ertswhile delivery-only service called Quil now runs the joint. The building’s new owner, according to property and business registration records, is an LLC with the same Los Angeles lawyer and Oakland business address as Higgins’ apartment management company. According to Planning records, Higgins was the point of contact for several inquiries as to the building’s permitting status.

Higgins is busy making the goodwill rounds in the local cannabis scene. He provided the marijuana at a recent three-course industry dinner with cannabis pairings, and sponsored a booth at a recent conference at the Parc 55 Hotel. But after an initial conversation with SF Weekly — in which he denied involvement with Bernal — Higgins did not return subsequent telephone calls requesting an interview.

It could be because he does not want to draw attention to his novel business tactic. But with demand for cannabis dispensary permits at an all-time high — there are only 22 permitted dispensaries in San Francisco, but 11 new applications have been received in the past month — this cat is already out of the bag.