In the Takoma neighborhood of D.C., a bustling brick warehouse is home to thousands of cannabis plants at various stages of bloom.
This cultivation manufacturing center, which opened in January, has been the result of an eight-year quest to secure a location, followed by a year-long build-out.
With less than half of its 65,000 square feet completed, the project is expected to reach a total investment of $20 million.
Owner Matt Lawson-Baker expressed his hope for the venture’s success, saying, “We’ve been a long time in the making for this, and we’re hoping it all pays off.”
This facility is one of just eight cultivation centers in the city, playing a critical role in supplying the 67 regulated retailers and nine processing facilities in D.C.’s expanding cannabis market.
In 2023, D.C. expanded its cannabis market, allowing residents and visitors to self-certify for medical licenses, leading to a dramatic increase in registered patients.
As the number of patients has more than quadrupled in three years, the city has lifted limits on cultivators, manufacturers, and retailers, resulting in a rapidly growing regulated market.
One significant requirement of this new market structure is that all cannabis sold in D.C. must be both grown and processed in the city, thereby relying on local cultivators and manufacturers to meet the increasing demand.
However, there are growing concerns regarding whether D.C.’s limited industrial space can accommodate the needs of this expanding market.
A city spokesperson indicated that an additional 340 retail cannabis businesses and 51 manufacturing businesses have received conditional approval and are actively searching for real estate.
Lisa Scott, a founding board member of the District of Columbia Cannabis Business Association, noted that there had been concerns prior to the market’s expansion about the potential for supply shortages, a fear that is becoming a reality.
“They were worried there wouldn’t be enough supply for the demand, and that’s actually sort of what’s happening right now,” Scott said.
Finding suitable space in D.C. is particularly challenging due to its high-density urban layout, which contrasts sharply with neighboring Maryland, where greater availability exists for cannabis cultivation.
Aspects like corporate landlords with mortgages often deter them from leasing to cannabis companies, given the federal illegality of the substance.
Lawson-Baker shared that AltSol began its facility search over a decade ago, giving them a significant head start compared to newer operations trying to establish themselves now.
He remarked, “It’s a nightmare. They’re all struggling. It’s very difficult to find.”
As the available spaces for growers and processors dwindle, the supply chain is starting to experience strain.
Cannabis attorneys John McGowan and Meredith Kinner have reported increased concerns among retailers and manufacturers about their ability to source necessary cannabis plants.
“They may want a certain amount of flower for their inventory but if they place an order for that, they may not be able to fulfill that order,” McGowan stated.
AltSol operates an additional 20,000 square foot location opened in 2015 in Ward 5, allowing the company to supply products to every licensed dispensary in D.C.
Online orders are made available once a week and typically sell out within an hour, demonstrating the high demand for their product.
The second phase of the Takoma facility is expected to add around nine more flower rooms to the existing three, highlighting the urgency to scale production in response to market growth.
“We know we’ve got to hurry up and get more grow rooms online, get more production in to keep the momentum of the market growth,” Lawson-Baker added.
Currently, there are 61 cultivators and 51 manufacturers holding conditional licenses, which must secure space and gain operational approval within two years, or risk losing their permissions.
As Scott observed, “I’m sure there’s many that have given up trying to find a location.”
The industrial real estate market in D.C. is so limited that both Cushman & Wakefield and CBRE have indicated they do not track its inventory.
According to JLL, D.C.’s industrial space is nearly 10 million square feet, with 90% of this inventory constructed before 1970.
In contrast, neighboring Prince George’s County, Maryland, boasts four times as much industrial space, making it more conducive to cannabis business operations.
As Cushman & Wakefield Executive Director Jon Lawrence explained, “It is a very small industrial market, and the supply has shrunk over time and will likely continue to do so.”
While cannabis cultivators and manufacturers do not exclusively need industrial space, they are restricted by zoning laws.
“Cultivation and manufacturing — the zoning is very, very limited,” Scott noted.
Zoning restrictions have made it difficult to create enough supply to meet the soaring demand.
Manufacturers who require industrial processing equipment are confined to specific Production, Distribution, and Repair zones, which account for only 5.2% of D.C.’s land area.
Cultivators and manufacturers who utilize kitchen equipment can operate in light manufacturing zones, which include portions of mixed-use and some downtown zones, although this avenue tends to be more expensive.
Some manufacturers have expressed frustration over their zoning limitations as they view their operations similarly to bakeries, which can exist in a wider array of mixed-use zones.
Kinner provided insight into this issue, mentioning, “There’s a lot of just discontent among people who haven’t found locations.”
Even in designated zones, the insecure nature of the real estate market complicates matters.
With cannabis remaining illegal federally, many landlords are hesitant to lease to cannabis businesses—especially if they have mortgages with federal backing.
Kinner explained, “What kind of mortgage does the owner have? Is it backed by the federal government? Because if it is, they’re probably not going to rent to a cannabis licensee.”
In response to these challenges, the D.C. Council is considering legislation that would allow retailers to manufacture their own products, such as edibles and oils, potentially increasing the availability of suitable spaces for manufacturing.
Pink Fox, an edibles manufacturer, experienced a long and frustrating search for a facility, exploring 100 different sites over a nine-month period.
CEO Mark Nagib detailed the arduous journey, involving many unsuccessful communications with real estate agents.
The business finally settled in a space, taking over 1,000 square feet of the former Ari’s Diner at the Hecht Warehouse in Ivy City, which proved suitable for their production needs.
While Nagib has not encountered problems sourcing distillates for his edibles, he anticipates cultivation will become increasingly complex.
“Cultivation is going to continue to be a huge issue in D.C. for a number of reasons,” Nagib explained, specifically citing the city’s limited space.
Given the competitive landscape of the cannabis market, landlords are aware of their leverage, leading to what Nagib referred to as the “cannabis tax.”
“Anywhere you go, you get the cannabis tax,” he added, indicating that cannabis businesses often pay higher rents than other types of businesses due to their scarcity of options.
Scott recalled her own challenges in securing a location for her cannabis retail venture, Bud Appetit, acknowledging the limited affordability and availability of spaces.
To address the shortfall of accessible real estate, the DCCBA is encouraging businesses to consider partnerships or shared leasing agreements.
This approach could allow several businesses to collectively occupy a space that might be too large or costly to manage independently.
“Maybe you find a partner, put your merger, conditional licenses into one, and maybe you can find something that you can afford together,” Scott suggested.
As pressure mounts due to impending deadlines for conditional licenses, Kinner and McGowan anticipate innovative strategies will emerge as businesses scramble for real estate.
They have witnessed instances of creativity, such as manufacturers without heavy processing needs occupying office spaces.
Scott is aware of one operation that built out a kitchen within a downtown office.
“As deadlines approach and things become scarce, I think people will start thinking outside the box,” McGowan concluded.
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