April 27, 2020

JF2064: A Passive Investors Perspective During The Coronavirus With Travis Watts

Join + receive...

This is either a first or possibly the second time we’ve had an investor on to talk to us about real estate investing, in the legal cannabis space. Dana will walk us through how she finds and vets properties, and the obstacles she has to work around in this space. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“You may have a license that you can move to a different location” – Dana Wallace


Dana Wallace Real Estate Background:

  • Owner of 420Estates.net, a firm that specializes in legally compliant Cannabis properties
  • she has over sixteen years of experience in the typical aspects of investment real estate sales
  • Based in San Francisco, CA
  • Say hi to her at https://www.420estates.net/
  • Best Ever Book: Code Of The Extraordinary Mind


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


Theo Hicks: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m your host today, Theo Hicks, and today we will be speaking with Dana Wallace. Dana, how are you doing today?

Dana Wallace: Great, how are you?

Theo Hicks: I’m doing fantastic, thanks for asking. I’m looking forward to our conversation. It’s gonna be a fun one, I can already tell. Before we get started though, a little bit about Dana. She is the owner of 420Estates.net, which is a firm that specializes in legally-compliant cannabis properties. She has over 16 years of experience in the typical aspects of investment real estate sales. Based in San Francisco. You can say hi to her to 420Estates.net.

Dana, before we get started, could you tell us a little bit more about your background and what you’re focused on now?

Dana Wallace: Absolutely, and thanks so much for letting me be a part of your podcast today. I really appreciate it. My company is just a boutique real estate company which basically specializes in legally-compliant cannabis and hemp properties. I am solely focused on the cannabis industry and hemp industry. We voted to bring recreational cannabis in in 2016, and I started my company in late 2015 when I saw that California was more than likely gonna vote this through… And it’s been a really interesting journey, anywhere from cultivation properties, to warehouse, industrial, commercial properties for distribution, extraction, which is considered manufacturing, dispensary, delivery… Lots of different things going on in the real estate portion of it. And I just have become very involved with a lot of the companies and small craft farmers that are working in the industry as well.

Theo Hicks: Okay, so I personally don’t know anything about these types of properties, so I’m gonna ask you just a bunch of questions, and if they seem like dumb questions, I apologize.

Dana Wallace: No, they’re never dumb. It’s a complex industry, and there’s a lot going on, and no municipality is the same, so… Yeah, fire away.

Theo Hicks: Okay. How many properties do you own? Either number, or just dollar amounts… What’s the volume we’re talking about here?

Dana Wallace: So I don’t specifically own any of the properties. What happens is an owner of the property will call me and they would like me to sell their property along with the business entity that obtained the cannabis licensing permits, or they have bought a property that they want to lease. And more than likely, that’s usually a warehouse; however, there are some landowners who are leasing to cultivators as well.

These owners have either gone through the process of becoming a permitted, licensed operation, or their actual property is zoned or approved to be able to operate a cannabis business, whether that’s cultivation, manufacturing, distribution… It just depends on what licensing they’ve gone through and what their property is approved or zoned for.

Theo Hicks: Okay, so you deal with owners of properties that are in the beginning  phases, all the way up to the shops that someone can go into and buy cannabis?

Dana Wallace: Yes. They can either be in the licensing process, they’ve already finished the licensing process, and so now they’re wanting to sell not only their real estate, but also the business entity that obtained the permits. That way, someone can come in and start operating and doing buildout, or they’ve got an already-established business and they’re looking to sell that as well, maybe for expansion, or they have obtained multiple permitting in multiple businesses.

Theo Hicks: Okay, so I’ve gone through the beginning phases, I’ve got my license and I want to buy a property, and I come to you. What would you say to me when I first sought you out?

Dana Wallace: In most cases you’re going to have a property, because in most municipalities you need to identify the location of where you’re gonna be operating your cannabis business. So they want you to have that property in place, whether you have purchased the real estate or you’re in a long-term lease on that real estate and the landlord has given full consent… Otherwise you would not have licensing in hand. Because with the lease, that landlord is going to have to be cannabis-friendly and have to submit an approval letter in order for you to be licensed. So you will have already identified a location.

Theo Hicks: Okay.

Dana Wallace: Sometimes different zoning has happened, especially for example in Los Angeles, and maybe you had a location and it’s no longer zoned correctly, so they’re allowing you to find a different location. In that circumstance you may have a license that you can move to a different location.

Theo Hicks: Is there a particular type of property I have to buy? Can I just buy a single family home in the middle of a neighborhood, or does it have to be in a specific location?

Dana Wallace: If you were going to grow out of your home, which some people choose to do, you’re gonna be allowed, in most cases, six plants per adult in the home. And again, the municipalities may vary, so your city or county may say “If you’re gonna grow six plants per adult, that’s fine, but you need to only grow in an enclosed space. Or you can only grow outdoor. And if you grow outdoor, then you need to put it in a small greenhouse.” And then they might have smell mitigation rules in place.

So most people that just wanna grow for personal use will not be utilizing me, because you can do that out of most homes. You just have to check your local ordinances. But if you’re coming to me because you want to grow commercially on a recreational level to sell to dispensaries, then you’re gonna be coming to me and saying “Okay, we have to find out what the proper zonage is in my particular area, whether they even allow it or not.” So there’s a bunch of research to be done, because each municipality does things differently.

Theo Hicks: I think you said this already, but do these people own a property that’s already zoned, or do you help them have their property rezoned to allow them to grow cannabis?

Dana Wallace: I have not gone through a rezoning process. I imagine that in most cases that would take quite a while. It’s just a matter of figuring out “Are you correctly zoned with your particular property?” And a lot of times they’ll have already gone to their planning department, spoke with their cannabis staffing, the building and planning permit department, and they’ll find out if they’re zoned. Like I said, each municipality is very different.

For example, in Oakland you’ve got a green zone. So you plug in your address and you look to see “Hey, does my industrial warehouse fall in the correct zone? And if it does, what am I allowed in my zone? Maybe I’m only allowed to do non-volatile manufacturing”, which is extracting cannabis plant oils. Or maybe I’m only allowed to do cultivation and distribution, moving my product out of this location. In that case, you look and see where you fall on their zoning map.

Other municipalities don’t have a zoning map, so you really need to go down to the municipality’s planning department, find out who to speak with, and find out where your property falls as far as zoning. If you’re looking at land, a lot of times if you’re zoned ag and you wanna do cultivation, that municipality is saying “If your property is zoned ag and you can meet these setbacks from your neighbors, and you’re not pulling from a creek or a natural water source, or basically harming the environment with what your plants are, with your cultivation business”, then yes, you can move forward and get your property permitted, because you’re zoned ag.

Theo Hicks: Okay. So you mentioned that someone would call you, and they either already have the business and they wanna sell it, or they want to lease it. The amount of money I can sell my property for, or the amount of money I can lease my property for – is it a lot higher than using it for just standard industrial use?

Dana Wallace: Yeah, there is more than likely always a cannabis premium on those properties. For example, if in your city a regular industrial warehouse is usually being leased for 75 cents to a dollar, to a dollar fifty a square foot, it can be as high as two to two fifty a square foot. So there’s definitely a cannabis premium. Same thing with selling… Because now you’ve added value to that property – and also leasing – because that property is actually permitted to conduct whatever cannabis business you’re looking to get into, which means you’re that much farther ahead of the game, so there’s more value in that property. You’re able to step into a business and purchase it, along with the real estate, whether you’re leasing and purchasing the real estate.

Theo Hicks: Do you know the types of returns these owners are getting once they actually start to operate their business? Let’s just use a landlord, for example; let’s say I’m a real estate investor, I’ve got one of these properties that’s leased and permitted to conduct a cannabis business… What types of cash-on-cash returns should I expect to see?

Dana Wallace: So you’re looking at 12% to 14% cap rate. A lot of investors have that business model in mind. I’m going to buy an industrial warehouse in the correct zone, get it permitted for cannabis business use, and then I’m gonna lease to cannabis tenants with that lease premium, for being able to operate a cannabis business.

So it can vary, again, from municipality to municipality. There are some small towns which are having economic hardships. Maybe they have a bunch of industrial properties that have been sitting abandoned, and they’re looking so forward to the tax revenue, and the jobs, and the things that it’s gonna bring to their communities, so they may have better lease pricing, or better purchase price points on their buildings. But in a lot of the bigger cities – yes, there’s a definite return margin. And it does vary, because a lot of the state permitting just became permanent at the beginning of this year, and there’s a lot of businesses still going through the process…

So it’ll remain to be seen where everything kind of settles and ways that we can mark in the fluctuations in the market. But we are starting to be able to point to different figures in the business and say “Okay, well this is kind of what this market is getting on returns and what they can commend. Okay, let’s go over here; this is kind of what we’re seeing in this particular municipality.” But it’s very new, so there’s not a lot of hardcore, solid points… But you’re definitely getting a premium on any purchase or lease figures that you do with cannabis clients or tenants; you’re definitely getting a higher return, because of the risk and the complications with this market right now.

Theo Hicks: That’s a perfect [unintelligible [00:12:52].20] my next question, which is besides the obvious regular risks associated with investing in real estate, what are some additional risks associated with this specific investment strategy?

Dana Wallace: The risks are that it is still federally illegal, although we are making huge progress. There’s bills in front of Congress now to push for federal legalization. One of our main hurdles in the cannabis industry is that the banks are federally regulated. Cannabis operators do not have a banking system that they can walk in and bank with, so it remains very much an all-cash business, which causes security problems for the operators. This is something that we’re in desperate need of – banking for our cannabis operators.

There are private groups that put together banking for Colorado, and that’s starting to happen here in California. You’re gonna have private groups that are able to put together banking, so that they can safely go in and bank. So instead of showing up to the state capital to pay your taxes with (unfortunately)  a briefcase or duffel bag with your tax payment in it, you’re actually gonna be able to safely bank. There’s also things that are set up – secure vaults; companies have started those as well, so that it is becoming more and more secure… But that’s one of the main hurdles – the banking for our cannabis operators.

Theo Hicks: Alright, Dana, what is your best real estate investing advice ever?

Dana Wallace: My best real estate investing advice for people who would like to dip their toes into the cannabis industry is basically when you’re being presented with ideas or real estate that has a cannabis entity that’s going to be operating out of it, is basically really find out who your cannabis company or operator is. You should know the full story on them, the full background story; who are they, how long have they been in the industry? Is there a brand that they can point to? Is there products that they can point to that they have on the market? What is their business history?

I say this with also the point that because of the banking industry, everybody had to do business in cash before, so you’re not gonna be able to look at somebody and go “Where’s your tax records? Where’s your bank statements?” So it’s very important to sit down and find out who it is you’re dealing with, what their experience is in the industry, and do they have a team made up of people who are also savvy with just regular business and corporate structures?

The other thing is you’re gonna wanna look at their growth plan for their company, whether it’s expansion capital, whether it’s buildout capital now, the guy has received the licenses and he wants to build out… You’re gonna wanna look at “Okay, well how has he planned out his growth?” Because for some of these businesses it’s much better to see them going through phases of growth – “Here’s phase one, and we’re  gonna start seeing profit before we move on to phase two, and phase three…”

Or you can get some guys who come in and go “We’re doing it all. We’re buying millions of dollars’ worth of real estate, we’re buying millions of dollars’ worth of licensing, and we’re going so big because we wanna dominate the market.” That can be very dangerous, because you need to really take baby steps… Unless you are getting involved with an absolute huge company and they have a record of being able to sustain themselves in the business so far. Again, we’re still a very new industry. But it can be very lucrative, you just need to do your due diligence and basically do the research it takes regarding who it is and where you’re gonna be located.

Theo Hicks: Alrighty. Are you ready for the Best Ever Lightning Round?

Dana Wallace: Sure.

Theo Hicks: Alrighty. First, a quick word from our sponsor.

Break: [00:17:05].08] to [00:18:03].07]

Theo Hicks: Okay Dana, what is the best ever book you’ve recently read?

Dana Wallace: Code of the Extraordinary Mind, by Vishen Lakhani. I may be pronouncing his last name wrong… But it’s basically — the whole book is premised on the way we grow, the values we are taught based on our culture, religion, or whatever it is, in our families, and maybe how our parents and grandparents grew up… And just taking a hard look at what do you wanna do, what are your passions, stepping outside of that box and following your own heart, instead of just the regular structures of maybe what you grew up with and the rules that you grew up with.

Theo Hicks: If your business were to collapse today, what would you do next?

Dana Wallace: Being in real estate, I am very used to pivoting and making sure that I’m always keeping one step ahead of my thought process as far as being able to build a sustainable real estate business… And it’s all about following niches.

So if the cannabis business or industry were to fall apart, I would stay in the investment realm of real estate, but I would pivot over to the hemp and CBD market, which is less regulated, less taxed, and is also going to be a huge industry. So I’m kind of always on the lookout for “Okay, what are the offshoots of what I’m currently doing? Keep your eye on that and stay involved in that as well”, and definitely pursuing niche real estate, or niche businesses, because it really sets you apart from what everybody else is doing, and helps you kind of stay at the forefront of people’s minds.

Theo Hicks: What is the best ever way you like to give back?

Dana Wallace: The way that I like to give back is you can spend a lot of time having conversations with people that may not end up monetizing anything for you. But the fact that you can share your knowledge and maybe help them in some way that’s not related to at all is really valuable to me. I appreciated when I first got into this industry being able to just pick people’s brains, find out what they were doing; they invited me to their properties, they invited me to lunches and conversations so I could learn everything I could about the industry and soak it all up. So I try to be very mindful of sharing that knowledge.

A lot of people like to label themselves as consultants and charge fees, and in my mind if I’m sharing the knowledge of what I know, it will come back to me, because I’ll have given someone else an opportunity that maybe there’s an idea or a  thought process they hadn’t thought of before I shared what I knew about the industry with them… So I just remain very mindful of sharing my knowledge.

Theo Hicks: And then lastly, what is the best ever place to reach you?

Dana Wallace: Well, you can reach me at my website, which is 420Estates.net. I’m also on Instagram, which is @420estates4you. I have a pretty good presence on LinkedIn as well, under Dana Wallace. You’ll see the 420Estates there also.

Theo Hicks: Alright, Dana, I really appreciate you coming on the show today and sharing your insight on the cannabis industry. Again, I didn’t know anything about this going in, so I really appreciate you giving us a rundown on the entire process. Just to summarize some of the key takeaways… So you mentioned that you need to buy a property in the right location, in the right zoning in order to operate a cannabis industry. If you’re a landlord or if you’re looking to sell that property, you need to keep that in mind.

We talked about the leasing and purchase prices of these types of properties, so there’s always gonna be what you call the cannabis premium. So if you’re looking at leasing your industrial warehouse, where you could get 75 cents to $1,50 for just regular use, the premium would be as high as $2 to $2,50 per square foot. And then similarly for selling that property – just like any other value-add strategy, if you’ve got the zoning and the permitting to allow you to conduct a cannabis business, you’re further ahead in the game and you can get a premium for that property. More specifically, you said that the returns are around 12% to 14% cap rate. Obviously, it’s new and there’s no hard data on this, and it could go up in the future.

You talked about the risks associated with this industry, and the fact that cannabis is still illegal federally. Because of that fact, the main hurdle is banking, so a lot of this investment strategy is all cash… But you mentioned that there’s some private groups out there that are starting to put together banking, and there’s some legislation that might pass that allows it to be legal federally, which would obviously change and reduce these risks.

And then lastly, you gave your best ever advice, which was to make sure you’re doing due diligence on any company who’s going to lease your industrial warehouse. You’re not gonna be able to find the typical tax records and bank statements like you would for a regular property, so instead you need to do due diligence on the companies, to get their background, how long they’ve been in this industry for, is there a brand or product that they can point to, what’s their business history, what does their team look like, are people on their team savvy businesspeople who have done businesses in the past?

And then lastly, look at their growth plan… And you mentioned that it’s better to see a growth plan that is in phases, as opposed to someone who is trying to just go all-in at once, unless of course it’s a well-established company who has a track record of being able to do that.

Again, I really appreciate it. Lots of great information. I know Best Ever listeners are gonna learn a lot from this episode and might have an idea for a new investment strategy if they are in one of these states where it is legal recreationally. I appreciate you stopping by, again. Best Ever listeners, thanks for listening. Have a best ever day, and we will talk to you tomorrow.

Dana Wallace: Thank you so much.

    Get More CRE Investing Tips Right to Your Inbox

    Get exclusive commercial real estate investing tips from industry experts, tailored for you CRE news, the latest videos, and more - right to your inbox weekly.