Pennsylvania Is On The Clock To Legalize Recreational Cannabis
Medical cannabis has grown in Pennsylvania to a much larger industry than in either of its neighbors to the north and east, but the decision to legalize it for recreational use could be the difference between a significant acceleration and a massive missed opportunity.
“It could significantly impede both short- and long-term revenue if we wait too long [to legalize recreational cannabis],” state Sen. Sharif Street told Bisnow. “It also makes [keeping cannabis illegal] a little pointless if people cross state lines to get it, so we’re not accomplishing anything to prevent people from using it. We’ll probably also have an uptick in arrests as people bring it across state lines.”
Street, who represents a large swath of North Philly, has co-sponsored legislation in the Pennsylvania state Senate with Republican Sen. Dan Laughlin of the Erie area to legalize adult-use cannabis with some of the same social justice-focused components as those passed in New Jersey and New York, including a provision to expunge all nonviolent, marijuana-related convictions. The bill will enter committee hearings once a suitable number of further co-sponsors join, Street said.
Though Street stressed the importance of Pennsylvania citizens making their voices heard in getting the legislation passed — “The energy outside the building is going to drive the progress inside the building,” he said — those in the industry have expressed confidence that recreational cannabis in the commonwealth is a matter of when, not if.
“I think that it will happen within the next two to three years,” said Stephanie Thomas, who consults for cannabis business development through her company Fifth and Olney and for cannabis-related site selection under the banner of Arrow Real Estate Services. “The whole East Coast is falling in line and Pennsylvania is right there in the middle. But it takes time to get things done here, because it has to go through the legislature.”
New Jersey’s adult-use law passed through a ballot measure in November, and the most recent states to pass similar bills through their legislatures, New York and Virginia, have Democrat control in both their state houses and governors’ mansions. Gov. Tom Wolf and Lt. Gov. John Fetterman are both publicly in favor of adult-use legalization, but Republicans control both state houses in Pennsylvania and as a party have historically been opposed to the concept. The electorate in the commonwealth, just as it is nationally, is heavily in favor of recreational cannabis being legalized, but opposition remains stiff in the state’s GOP, despite Laughlin's co-sponsorship of the bill.
Building cultivation facilities or dispensaries without a medical license in hand is illegal, so construction solely in anticipation of adult-use legalization is a nonstarter, but the industry is growing and drawing new investors from out of state just the same.
“You have a lot of the major national operators securing licenses and recognizing that Pennsylvania is going to be a very valuable state over the next five to 10 years in the cannabis industry,” NewLake Chief Investment Officer Anthony Coniglio said. “We see a significant amount of proposals for canopy build-out [infrastructure needed to grow cannabis], and we think that’s people wanting to be in position to move quickly once there’s clarity on legalization.”
National cannabis heavyweight Curaleaf has operated a combined cultivation and retail facility in the South Jersey suburb of Bellmawr for over five years, and it is well set up to apply for a recreational permit when they become available, Wolf Commercial Real Estate Director of Community Relations David Spector said. Meanwhile, without any dispensaries in Camden, Bellmawr is the likeliest threat of cannabis dollars crossing the Ben Franklin Bridge.
Pennsylvania is at a rare moment of opportunity, considering how advanced its medical program — legalized in 2016 — is compared to New Jersey and New York, which have only 16 and 40 medical dispensaries up and running, respectively. Pennsylvania has over 100 in operation and could approach 200 by the end of the year, Jushi founder and President Erich Mauff said.
The commonwealth has more than twice as much square footage devoted to cultivation and processing of cannabis as New York and New Jersey combined, he said.
“Of all the states on the East Coast, PA is the best poised to introduce adult use and still serve medical patients,” Mauff said. “Plus, it has the infrastructure for additional expansion to be able to service the adult-use population easily.”
Neither New Jersey nor New York has a timeline for when the first cannabis will be sold to someone without a medical card, but until that happens, Pennsylvania has the opportunity to catch up in a meaningful way.
“If there were to be a green light by the end of this year, then by Jan. 1, 2023, I think PA would be very ready for adult use,” Mauff said. “It will literally be light years ahead of New York and New Jersey.”
Jushi’s production facility for the state is in Scranton, where its canopy is 33K SF and services its 11 Beyond/Hello dispensaries in the state, two of which are in Center City, with a third under construction on Lancaster Avenue just north of University City. Jushi is already working on tripling its canopy to 100K SF in Scranton, which Mauff said is purely in response to the amount of demand for medical products.
“If we were to know adult-use [legalization] was coming, we may be more aggressive in our expansion,” Mauff said.
For real estate purposes, two impediments to cannabis business stand out: how to finance it and where to put it. The abundance of land outside of major metros in the state means finding cultivation sites isn’t an issue, keeping at least one element of cost down.
“Generally, the grow process tends to be somewhere in the middle of nowhere, where you don’t have to do as much odor mitigation,” Thomas said. “You can get anywhere in the state and back in one day. It may be a long drive to get from Philly to Pittsburgh and back in one day, but you can do it. Being centrally located would be good, but it doesn’t have to be in Carlisle.”
For dispensaries, the issue is much more complex, as the desire to be close to a dense customer population runs up against use restrictions preventing locations within a certain proximity of schools, religious centers and daycare centers, among others.
The suburbs of Philadelphia are more spread out, but not to the degree that a dispensary can easily avoid any local use restrictions, Thomas said. Then there is the NIMBY factor, which can be more intense in the suburbs.
“Smaller towns, if you go to a community meeting and announce your intent to place a cannabis shop, all the torches and pitchforks come out,” Thomas said.
Still, Jushi has seemingly cracked the code of how to find space in Philadelphia’s most potentially lucrative areas.
“We have not found it difficult to find stores,” Mauff said. “If you put your shoulder to the wheel, you can have a store. Maybe people are upset they can’t be in the perfect location, but I don’t think site selection in PA has been prohibitively difficult.”
As for financing, encouraging signs have emerged in that regard as well. The SAFE Banking Act, which would strike down the ban on lending to cannabis-related businesses for any bank or financial institution receiving federal insurance, passed the House of Representatives on Monday. If it passes the Senate, it would break down a massive barrier to entry for the communities that have been disproportionately harmed by the war on drugs, which could in turn make those communities more amenable to dispensaries that are run by one of their own, Coniglio said.
Adult-use legalization would also allow for more types of business, like pure retail that would have a much easier time buying wholesale from cultivators and distributors if the supply chain becomes regulated more like the alcohol industry than like a prescription drug, Mauff and Street agreed. A possibility even exists for use restrictions to be eased in some circumstances.
“I think that use restrictions [for adult use] could be somewhat similar [to medical cannabis], though there may be an opportunity to revisit some of them,” Street said. “Obviously there would be more establishments, so how many feet they can be away from each other and things like that may change somewhat.”
All specifics of implementation will have to be sorted out if and when the legislation itself passes, which Coniglio and Mauff agree would likely take from nine months at the absolute quickest to a year — time that has to be factored in when considering Pennsylvania’s position relative to its neighbors.
Local players waiting on adult-use legalization to start their businesses would benefit the most from a speedy process. The continued growth of cannabis all over the country has given operators like Trulieve the capital required to make investments ahead of time to a much greater degree than even 18 months ago, Coniglio said.
“The companies that get to market early will have pricing power,” Coniglio said. “For companies that aren’t in the state, now is the time … Pennsylvania absolutely will legalize it; it’s just a matter of when. So they’re willing to commit the capital for when it does happen.”
CORRECTION, APRIL 26, 1:35 P.M. ET: A previous version of this article misstated the name of the company that operates a dispensary in Bellmawr, New Jersey. This article has been updated.