October 4, 2022

JF2952: Risks & Rewards of Investing in Cannabis CRE ft. Bryan McLaren

Bryan McLaren’s real estate background started in sustainable development. He spent his early career working with local communities on how to develop real estate, renewable energy, community systems, agricultural regeneration, and more. 


Around 2010 when many states started to legalize cannabis, he immediately saw similarities between sustainable development and the cannabis programs that were emerging in the market. The overlap launched his involvement in the cannabis real estate industry. 


Today, Bryan is the CEO of Zoned Properties, a real estate development firm for emerging and highly regulated industries including legalized cannabis. In this episode, he discusses the three major risk conversations investors need to have when it comes to cannabis, his tips for mitigating those risks, and why he is so passionate about the cannabis real estate industry. 


“The reason we’re experts is we made every mistake possible along the way, and we learned from them.” 


Bryan McLaren | Real Estate Background

  • CEO of Zoned Properties, a real estate development firm for emerging and highly regulated industries including legalized cannabis. They provide integrated growth commercial real estate services, including advisory, site identification, commercial brokerage, property acquisition/investment, sustainable development, and Property Technology (PropTech).
  • Portfolio:
    • GP of four commercial properties in Arizona that have been developed, permitted, and leased to regulated/legalized cannabis operators.
  • Based in: Scottsdale, AZ
  • Say hi to him at:
  • Greatest Lesson: Trust in your brain. In other words, identify smart and ambitious people to join your team, provide clear direction about the goals and objectives, and then trust those team members to get the job done. And provide whatever tools they need to support them.



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Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed and I'm here with Bryan McLaren. Bryan is joining us from Scottsdale, Arizona. He's the CEO of Zoned Properties, a real estate development firm for emerging and highly regulated industries, including legalized cannabis. Currently GP of four commercial properties in Arizona that have been developed, permitted and leased to regulated/legalized cannabis operators. Bryan, can you start us off with a little bit more about your background, and then a little bit more about what you're currently focused on?

Bryan McLaren: Yeah, great, Slocomb. Thank you for having me. I love the podcast. Hopefully, this will be an interesting one for your listeners.

Slocomb Reed: I expect it will be.

Bryan McLaren: Talking about a federally illegal or federally gray area marketplace, that's now the majority of Americans live somewhere where they have access to this product at a state legalized level... It's just a fascinating conversation, which is how I got into it. My whole background prior to cannabis real estate development was in sustainable development. So I spent almost my entire graduate research career and then early professional career working with local communities on how to develop real estate, renewable energy and community systems, composting, agricultural regeneration... How do you make a sustainable community. And in that process, I spent a lot of time in city councils, with non-governmental-affiliated groups, trying to figure that question out.

So when cannabis started to build steam - 2010 is really the year which many states Colorado, Arizona, California were starting to pick up legalization of state cannabis programs - and we can get into that overview for the audience, but immediately, something triggered for me that sustainable development, which is a very local, grassroots style movement, had the exact same characteristics as cannabis. As that market was emerging, it was hyperlocal; cannabis is legalized at the state level. We're still waiting to see what the federal government, in the US at least, does for legalization and regulation, but many countries, Canada included, have legalized it at the federal level. And when you're talking about a humongous industry like this, 150 to 200 billion of economic impact, you're going to need a lot of commercial real estate and community planning to support that type of an industrial sector. So I saw that overlap and immediately started getting involved, both on the physical real estate side, as well as on the community planning and advocacy side. So that's really how I got into cannabis real estate, and the investment side is really critical for us. We're a publicly traded-company, so how to put smart capital into a very complex and highly regulated industry is something we talk about all the time.

Slocomb Reed: So I summarize the bio that you sent into the podcast, Bryan, and I kind of zeroed in on the cannabis part... It sounds like you offer a lot of professional services also to other investors, who are getting ready to develop land, go through the entitlement permit processes, things like that, for development for use in heavily regulated industries. What others industries are you doing that in?

Bryan McLaren: Great question. It might be helpful for the audience too, for the sake of the conversation, if I zoom out a little bit. Today, we're almost entirely focused on regulated cannabis, to answer your direct question...

Slocomb Reed: Gotcha.

Bryan McLaren: ...but how we've built zoned property is very much at a high level towards industries, and there's several of them, I'll mention them in a moment, beyond cannabis. But not just that are regulated. All commercial real estate - which is what we focus on in real estate; we don't really do any residential - is regulated to some capacity. You need to plan and design your facility, you need to raise capital, you need to find a site for it, get your local permitting... It just so happens that there are several sub-sectors like cannabis, legalized sport books, potentially psychedelics or other plant-based medicine that is up and coming following cannabis legalization across the country... These tend to be legalized and regulated very interestingly, again, hyper-local. So what will be helpful for the audience quickly as maybe I'll give a quick overview of how cannabis has grown and emerged in the US.

Because it is still technically federally illegal under the Controlled Substances Act, as I mentioned, cannabis is a very grassroots movement. Decades of advocates have come together on a state by state basis, with really great organizations that have helped lead the charge, like Normal, or Marijuana Policy Project, that have basically said, "We think we got this wrong." The war on drugs, criminalizing the substance and putting people in jail isn't working. It's not improving prosperity for our communities. So that grassroots movement finally picked up steam, and the first couple of states that I mentioned in early 2000s, 2010 and beyond, Colorado, Arizona, Oregon, Washington - really, a lot of West Coast states legalized and implemented cannabis consumption programs at the state level, knowing full well that there was a conflict between state law and federal law.

Slocomb Reed: One of those early adopter states being Arizona, where your current investments are focused.

Bryan McLaren: Correct. So that was the time at which -- Arizona technically legalized in 2010, and what happens on a state by state basis in most state markets, and what's really cool from a real estate perspective and investment perspective, is every state market is different. That's what makes it so challenging, but that's also what creates the opportunities.

Slocomb Reed: Gotcha.

Bryan McLaren: So each state issues a different number of licenses, like a liquor license, or a pharmaceutical license, where you need that license to operate a piece of real estate... Some are super-limited; there might only be a dozen in the whole state. Some states like Oklahoma and Colorado have unlimited. So there may be thousands of different facilities. And when it comes to the real estate, we're really talking about three pieces. We're talking about the retail, which is called a dispensary. We're talking about the agricultural piece, which is cultivation, or a growth site. And we're talking about manufacturing - places where oils are processed, kitchens that make edibles, roll joints... So those are the three main pieces of the cannabis industry where you need real estate.

Every state's different, so as the states started to legalize, and as of today, middle of 2022, 37 states and four districts have full legalized programs, either medical or adult use recreational programs... And you can feel that momentum building. So from an investment perspective, lots of groups are focused on what we'd call the plant-touching side of the industry. So they're selling, growing, manufacturing product. But then you have all of these non-plant-touching, ancillary requirements, like insurance, financial banking, real estate. And so where zoned properties comes in is we're a full service real estate company; we never take ownership in the cannabis businesses, we're non-plant touching... But we provide technology services, advisory services, full licensed brokerage services, and then we invest and acquire properties. As you mentioned, we have four currently in Arizona, but we're just about to really turn on our investment engine across the country, and we service clients nationally.

Slocomb Reed: Nice. Several questions come up for me. A couple of big ones before I get into those, though... A bit of a personal aside that may be relevant to our conversation. I'm based in Cincinnati, Ohio. Do you remember specific to Ohio what the state laws are with regards to cannabis?

Bryan McLaren: I do very well, and it's so funny you say that, because we were brought in by the original group responsible in Ohio.

Slocomb Reed: Gotcha.

Bryan McLaren: So [unintelligible 00:09:59.24] advise them on what that program would have looked like had it not failed at the ballot box.

Slocomb Reed: Gotcha. Oh, well, this will be interesting. Let's talk about that failing at the ballot box.

Bryan McLaren: Sure.

Slocomb Reed: It's still illegal in Ohio, correct?

Bryan McLaren: To some extent, Slocomb. Ohio now has, in theory, a state legalized medical program that evolved from that original responsible Ohio measure that failed. And Ohio may or may not implement a full adult use legalized program; but currently, it's medical only, and there have been licenses distributed and operating under the medical program in Ohio.

Slocomb Reed: Gotcha. So I voted in Ohio, and I ended up voting against the thing that you worked on, not from a cannabis perspective, but from a business perspective. My layman's understanding was that the way that that legalization of marijuana in Ohio was structured, it would only legalize the growth of cannabis, the agricultural activity in 10 specific locations that had already been purchased for the sake of pushing this through... And what I thought to myself was, "There's momentum behind the legalization of cannabis. If it doesn't happen now, it'll happen later. But if it happens now, with a few specific companies and people having a monopoly on where it can be grown here, from a business perspective, that doesn't make much sense to me for Ohio. Let's just wait a little while, let's be one of the laggards in the legalization of cannabis, but actually have a more open market when it comes to the agricultural activity involved." I think I was a full-time professional youth minister who maybe had a four-family at the time; I was not real estate savvy. But from a business perspective, it didn't make sense to me for Ohio fat to go through. Interesting to hear that I'm now interviewing somebody who was putting that together...

Let's talk about this specific from a real estate investment perspective and specific to - we have a lot of accredited investors, and a lot of people who are already limited partners in commercial real estate syndications within our listener base; we have a very sophisticated listener base, Bryan, as I believe you are aware, and I believe you're a member of our listenership. Thank you for that, by the way.

Let's talk about this from the perspective of risk. For people who are putting their capital into the activity which you do, which is buying the land so that it can be leased for a use that is still currently federally illegal. You have, in this case specific to Ohio, people who put a lot of money into the legalization effort, and a lot of money into acquiring the land that their legalization effort would have been exclusive to, and they got shot down at the ballot box. That's a risk.

Bryan McLaren: Huge risk. And I think it was the right decision, by the way.

Slocomb Reed: Oh, okay...

Bryan McLaren: I think Ohio made the right choice. Yeah, so I'm actually with you; we can talk about this.

Slocomb Reed: This is not the day I was expecting to have today, and this is not the conversation I was expecting to have either, but I like where this is going. So let's talk about that. The other risk that I want to get to, of course, after we talk specifically about the example that Ohio provides us with, is the risk that some sort of new federal action or legislation will overpower the state and local legalization of cannabis. And I don't care how that impacts the cannabis industry for the sake of this conversation, I care about how that impacts your investments, and potential future investments by our listener base in this space, and purchasing real estate for the sake of being developed for something that's still currently federally illegal. But let's get back to the Ohio thing. Tell me why you think I voted correctly.

Bryan McLaren: Yeah. And Slocomb, so much here. Some follow-up chats are gonna have to be had on this for sure.

Slocomb Reed: I love it.

Bryan McLaren: So a lot to unpack here. I'll try and keep this pointed, and we'll go wherever it makes sense... But our role specifically with the Ohio group, we actually came in and helped design large-scale cultivation facilities. Part of what we view zoned properties in our team as is a brain trust. And I'm going to try and connect all the dots together from this response that you've just laid out. So I'll come full circle back to Ohio in a moment, but... For real estate investments, especially in a very complex and constantly volatile and evolving space, the risk-reward profile is critical. A huge reason we built zoned properties the way we did, and why we view ourselves as a brain trust, is really to help mitigate that risk.

So something your listeners may have heard if they've looked into cannabis real estate is that it commands these amazing premium rental rates, and cap rates on a sale leaseback or on a real estate investment transaction are double or triple what they might be in something like multifamily or spec building. And while that is the case, any of us that are investment-minded people know that the risk-reward profile balances itself out. So if you want to go after high interest rate loans, you are going to have a much larger risk. Same thing with the real estate investing equation.

So there is certainly significant risk in the volatility of laws and regulations between federal and state, and the reality is, bluntly, we don't know. It is very possible that the federal government approaches a legalization measure; there are several in Congress right now. One of them would essentially try to replace many of the regulatory structures in the state marketplaces. Another one of them would leave them exactly as is, and empower each state to continue making its own program that fits for them. So as you can imagine, those are wildly different scenarios, and if you have several million dollars tied up in a piece of real estate, and all of a sudden your tenant can no longer operate in that piece of real estate, all of a sudden your risk-reward profile becomes really important.

Break: [00:16:18.13] to [00:18:12.05]

Slocomb Reed: You can go get another tenant, but you already have land that's developed specific to something that can no longer be done. So it's not like your investment becomes useless, but I don't know that anybody else is going to pay you for the use of that land at the same way, yeah.

Bryan McLaren: Right. That delta, that premium... And really different on a retail brick and mortar storefront that - sure, it's a cannabis dispensary, but 90% of the infrastructure and improvements could be used for a fast food shop, or a random consumer retail shop. Whereas that highest and best use difference - if you build a greenhouse for cultivating cannabis and you have really specific equipment in there... Absolutely. Maybe 50% of your investment in that improvement can't be used for anything else.

So there's three huge risk conversations when it comes to cannabis. So that one, whether your site is too specific to cannabis, if for whatever reason the site can't be used for cannabis. Then the second part of the risk conversation is if your specific cannabis operator or tenant fails, what is the likelihood you can put a competing or a different-licensed tenant in there. And then the third piece is if there's just a risk to that real estate itself, not having to do with the cannabis operation, but the zoning and permitting. So, for example, a newly legalized state... Let's go back full-circle to Ohio. So the one thing I did not like about that program either - and had we been brought in early, I would have voiced this strongly... But we were brought more in on the facility design had the measure passed. But exactly what you just said, and exactly what the majority of voters said when they voted at the ballot boxes... We don't like a state program that is controlled by 10 groups. So some states are more free market, some states are okay with that type of oligopolistic system, so to speak... But in my opinion, you cannot put those types of roadblocks and impediments in place, and simultaneously have the emerging healthy growth of the industry as a whole.

Again, this is an industry that very likely could rival or move past the alcohol industry. Alcohol is about a 240 billion annual economic impact, I believe. Some various data sources view cannabis as being there in about 10 years. So that might mean 75-100 billion worth of commercial real estate... But this is the Monopoly board, so to speak; I think a lot of us that are real estate people love playing Monopoly. It's as if the rules of Monopoly changed in the middle of your game, and all of a sudden, you can't put hotels on anything on this side of the board. So that's the cannabis industry. The plane is being built as we're flying it, and back to it, whether it's in Ohio, or for the audience of real estate investment, the brain trust - it's so critical. Your network advisors - talk to people who maybe have been involved in a cannabis real estate project in the past; do your due diligence, spend some time researching if you don't have a direct connection to anyone. Anyone in the audience at anytime is free to reach out to us just for an informal conversation.

So we view this as a long-term. We're very focused, Slocomb, on our real estate investment strategy as related to direct to consumer and consumer-facing brick and mortar. So it's a little bit of a dichotomy between I think the big risk in retail we see real estate is the virtual world. So consumers are buying things online, instead of foot traffic, brick and mortar. Cannabis, for many reasons, will likely require to be in-person purchases for many years. So there's a real opportunity to put [unintelligible 00:22:07.08] job growth, property, tax dollars, property improvements. These are all things that can add to a community's prosperity, which is why we're so focused on it.

Slocomb Reed: There's a lot in there, Bryan. Unfortunately, this is a short-form podcast. A lead-in question for you... I said you have GP-ed four commercial properties in Arizona. Are those deals that you raised capital from limited partners to fund?

Bryan McLaren: Not from a partnership structure. So as I mentioned, we're a public company, which is a whole other conversation, but US-based cannabis companies need to trade over the counter. So very few cannabis companies are on big exchanges, though a couple real estate investment trusts that focus on cannabis are. But we raised about $12 million from a small group of private investors that invested into the public vehicle, and then we use that capital to acquire, develop and stabilize our properties.

So I don't know that Zoned Properties will pursue partnership structures or syndicated rounds; we might very well. But one of the whole reasons we're public is to present a clean investment vehicle and an opportunity for investors to invest that way. But I think a diversified approach -- if you're going to get into cannabis, diversifying how you invest is critical. Some direct investments, some fund investments and public investments... Just learn as much as you can.

Slocomb Reed: That makes sense. Bryan, I'd like to summarize my thoughts here before we transition to the last segment of the episode, and then get your take on what I say; anywhere I need to be corrected or anything you feel needs to be sussed out. When it comes to being an active real estate investor, doing what you at Zoned do... Ironically, this is reminding me of conversations I've had recently for the podcast with people who invest in residential stuff in California, particularly in Los Angeles and in the San Francisco Bay Area. And why it reminds me of that is because you as an investor are participating in active investing in an arena with a very high barrier to entry. I am a pretty sophisticated apartment investor when it comes to the daily operations, finding, negotiating, acquiring good deals, repositioning properties, getting things to cash-flow smoothly... I can't just jump into what you do. There's so much learning by doing that I would have to do there; some significant barriers to entry. When you perform well on an investment strategy with high barriers to entry - and one of the reasons that the California investors I've interviewed remind me a lot of you is just how much more regulation there is on development, for example, in Hollywood, than there is in development in Cincinnati. There are really high returns possible for people who can scale high barriers of entry as active investors. It's work, you have to be an expert, in a lot of ways it may feel like you're walking a tightrope, and yes, you're a professional, you know what you're doing, but also a slip and fall is more catastrophic if your tenant becomes illegalized. That's a lot tougher on your business plan than my tenant losing his job.

Bryan McLaren: Sure.

Slocomb Reed: I can replace my attendant much more readily. That being said, the return potential is much greater in what you're doing than what I'm doing, frankly. Thinking for limited partners, you brought up the word diversification, and that makes a lot of sense to me. I know a lot of limited partners and people who invest in the stock market, people who used to invest in crypto, who are looking to make small speculative bets in industries and fields that they believe in. And it makes a lot of sense to me here. I'm not making a judgment call on cannabis on this podcast. But if our listeners who are looking to place capital believe in the future of cannabis in the United States, then it seems like getting involved as a limited partner in investment vehicles like this could be a great fit for them. Of course, there's risk, there's a possibility that you'll lose capital. Nothing is being offered on this episode. This is for informational purposes only. But if you want to make what may feel like a more speculative bet because you believe in the future of the industry, then this could be an opportunity to invest in it. I just dumped a lot on you. You've done a lot of nodding, for those listeners who are not watching on YouTube. What's your take on that?

Bryan McLaren: Yeah, I think your summary is spot on. There is an equation all of us as investors and real estate investors, there's an equation or a formula where for whatever reasons we like certain areas, we like certain timelines... And for all investors, I think you kind of build your own formula; you come up with your own variables you'd like to go after, and the piece of your summary, Slocomb, I definitely agree with, is the barrier to entry piece. One of the reasons Zoned Properties exists as a company is because we're a bunch of really passionate individuals who like really complex real estate deals. If you can tell by my tone and energy, I consider myself kind of a nerdy real estate, local planning kind of guy.

Slocomb Reed: I'll give you a nerdy, yeah. I'll give you nerdy.

Bryan McLaren: Thank you. There's 40,000 communities having this conversation. So back to from an investor perspective, and certainly, in no way soliciting or making any kind of offer, as you mentioned, but I'll go back to what I said earlier to the audience - do some research. Depending on what your formula is, if you like being a sole, direct investor, if you like being a limited partner, if you like pursuing syndicated investment rounds, just understand that because of the federal regulatory position on cannabis, the illegal nature of it today, many of those traditional real estate investment platforms don't work, at least not currently. They will come. So direct private investment and through public vehicles tend to be the two largest real estate investment opportunities in cannabis today... But make sure not only you zoom all the way in on a specific deal you might be considering, or a specific investment, but zoom all the way out, too. What is the sentiment of cannabis in the area you're looking at? Is there a big debate in that specific state about is it medical? Is it adult use? Are they pausing it? Are they growing the program? All of that's going to impact real estate. And the good news is if you figure that formula out, like we believe we have at Zoned Properties, your barrier to entry is very high for several years.

So the question is, you've gotten past the barrier yourself, there's barrier to competitors... How do you make sure to mitigate the risk and capture most of the return on your investment? That's the move.

Slocomb Reed: Awesome. Bryan, Best Ever listeners, unfortunately, we've gone over time with this interview. I wish we had another hour. We're gonna forego most of the best ever lightning round... But I do want to ask Bryan, for our listeners, what is your best ever advice?

Bryan McLaren: It's gonna sound basic, guys, but be kind to yourself. An industry like cannabis, I have learned, is so complex. It's so unforgiving. Just be patient and persistent, but be kind to yourself. If you're going to get into an industry like cannabis, you're going to make mistakes. Zoned has been around and I've been at this for almost a decade. The reason we're experts is we made every mistake possible along the way, and we learned from them. So just treat yourself in the same capacity and be kind to yourself.

Slocomb Reed: I feel that answer. Whenever I feel like an expert, it's because I've just made all the mistakes that other people need to learn from. For sure. Where can our listeners get in touch with you, Bryan?

Bryan McLaren: Yeah. Best way, check out our website, zonedproperties.com. We've got a pretty active Twitter feed, @zonedproperties. We're always tweeting about local zoning case studies, and where cannabis is coming across the country... Or listeners can email me directly. It's Bryan [at] zonedproperties.com. Always interested to have a conversation with anyone, if you're just pursuing your own project, or you want to talk about where a potential real estate investment might go... Happy to talk to anyone about any of that.

Slocomb Reed: Those links are in the show notes, as well. Bryan, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to this show. Please leave us a five star review and please share this with a friend who you think would be interested in hearing about this conversation we've had specific to real estate investing around the cannabis industry. Thank you, and have a best ever day.

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