The City of Edmonton just released information pertaining to the applications they’ve received for cannabis retail locations. What caught our attention was the fact that 242 applications were received in Edmonton alone, yet AGLC is estimating they will only issue 250 licenses province-wide.
Since AGLC has not disclosed how many will be in Edmonton, we looked at it solely on the basis of Edmonton’s population as a percentage of Alberta as a whole. According to recent census information, Edmonton is roughly 23% of the total population in Alberta. If we assume that AGLC will award licenses based on population, there would be less than 60 cannabis retail licenses issued in Edmonton.
Regarding the 242 applications received, each of them would have needed to secure retail space as part of their application. To our knowledge, businesses have secured space in one of three ways:
1. Signed a lease with a condition of obtaining a license;
2. Signed a lease with a provision they can break the lease if they are not given a license;
3. Signed a lease on the premises they will honour the terms of the agreement regardless of whether or not they get a license.
Let’s look at these one at at time, as they each have pros and cons for both the tenant and the landlord.
The preferred option from the tenant’s standpoint is to have the lease be conditional upon getting a license from AGLC and a development permit from the City of Edmonton. If neither are granted, the tenant does not remove conditions and the deal is null and void. The problem from the landlord’s standpoint is that they have to tie up the space for months (in theory at least until October 17th when Bill C-45 comes into effect) with no certainty the tenant will be able to enter into a lease. This is a long time for landlord’s to take space off the market, particularly as they could have been looking for other tenants in the meantime. While some landlords may have been receptive to this idea, most we have spoken to have outright refused to lease space on that basis.
While we are not privy to the lease terms of all 242 applications, our experience has been that option #2 is the most common. In this scenario, the tenant has entered into a lease agreement where they have the option to cancel the lease if they do not receive a license from AGLC or a development permit from the City of Edmonton. In each of the leases we’re aware of, there is a financial penalty to break the lease. This allows the tenant to secure a space until they have an answer but still give the landlord some comfort that they’ll be compensated if the lease is broken. The amount of the penalty is negotiated just the same as the other terms of the lease.
The third option puts all of the risk on the tenant, and at first we had a hard time believing they were happening. In this scenario, the tenant agrees to lease the space even if they are not granted a license. If they are unsuccessful, they will be responsible for either sub-leasing the space or paying out the lease in it’s entirety. We know of at least one tenant who has agreed to terms on this basis.
Regardless of how the applicants negotiated their leases, there could be in excess of 180 retail locations coming back on the market once the dust settles.
As one might expect, Whyte Avenue is an area that has garnered a lot of interest. In total, there are 34 applications just for that area. We plotted all the applicants in the Whyte Avenue area just to show how staggeringly close they all are.
Notwithstanding AGLC’s selection process, the City of Edmonton will also control the process of issuing development permits, which will include how many can go in an area or how close one can be from another.
While it’s anyone’s guess how everything will unfold, one thing is for certain: a lot of prime retail space coming back onto the market in the fall.
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Chad is a partner with NAI Commercial and has finished as a top 15 producer Canada-wide for the past three years. Chad owes his success largely to his commitment to uncompromising client representation, his active involvement in the real estate and business communities and a lifelong pursuit of continuous learning.
Ryan is a partner with NAI Commercial Real Estate in Edmonton. He is currently ranked nationally as one of NAI’s top advisors in Canada. Having completed his Bachelor of Commerce majoring in Finance, his eye for detail and great understanding of the numbers associated with any business decision makes him an asset to his clients while providing them the highest level of service.
Darcie began her career in Commercial Real Estate after completing her studies in Business Administration. Her personable nature coupled with a results-driven attitude is a perfect match for customers. Darcie understands the importance of delivering a custom, accountable solution for her clients.
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