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.
Information contained herein is the sole opinion of the authors and does not represent the views or opinions of any other person, company, group, or organization. Nothing contained herein should be construed as real estate or legal advice and does not form part of any future contract. View our full disclaimer here.
Chad GriffithsSIOR, CCIM
Chad is a partner with NAI Commercial Real Estate and focuses on the Greater Edmonton area. Chad entered the industry in 2004 and has completed over 400 commercial transactions with clients ranging from small, local companies to large institutional owners. Chad has been a top 15 producer Canada-wide since 2013.
Ryan BrownBCom, SIOR
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 executed in excess of $100 Million dollars worth of sales transactions and over 2 Million square feet of lease transactions, Ryan has developed a firm understanding of asset evaluation and an aptitude for building design, functionality, and practicality for long term use.
Darcie is a licensed Commercial Real Estate Agent in the Province of Alberta with a focus on the Edmonton market and its surrounding areas. Darcie accomplishes custom solutions for her clients through her personable nature and results driven attitude. Darcie can help if you are looking to invest in commercial real estate or are looking for representation for a sale or lease transactions.
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