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West Hollywood Hotel Seeks OK to Offer Cannabis

The Standard Hotel Would Add Store as Part of Commitment to Deliver 'Next-Level Experiences'
April 13, 2018
A high-end West Hollywood hotel is seeking permission to add a fresh amenity to its line-up: The Standard Hotel is hoping to offer cannabis to guests and eventually house a retail store.

The proposal, which needs to pass muster with the City of West Hollywood, is hardly a certainty, but it reflects a growing interest among some businesses to capitalize on the movement to legalize weed.

Already rents for warehouse space to grow and store the product in states that have legalized recreational cannabis have outpaced national trends, according to CoStar data. For example, in Denver, where recreational marijuana was legalized six years ago, industrial rates have increased 33 percent since the first quarter of 2014.

The Standard Hotel Hollywood, located on the Sunset Strip in West Hollywood, opened nearly 20 years ago. The 139-room hotel, known for its video art and nightly deejays, is the chain’s original location.

There are also Standard Hotels in Miami and two locations in New York City. A London outpost may also be opening.

The chain plans to first stock cannabis products in minibars at the Standard Hotel Hollywood and at the Standard Hotel Downtown, located at 550 S. Flower St., before expanding to its other locations nationwide.

A Lord Jones flagship store, which would sell cannabis-infused products, is also in the works in the lobby of the Standard Hotel Hollywood. Lord Jones, a two-year-old, Los Angeles-based retailer, sells a variety of cannabis-related products, including Lord Jones gumdrops, dark chocolate and body lotions.

"The Standard has always been committed to delivering next level experiences to our guests," Amar Lalvani, chief executive of Standard International, The Standard’s parent company, said in a statement. The substance "has become a part of a daily health and wellness regimen for many people and we wanted our guests to have access to the finest available."

First, the Standard Hotel needs to be approved for a license to be a marijuana dispensary.

"If they’re lucky enough to be granted a license by our city, Lord Jones could have a retail store," said Jackie Rocco, business development manager for the City of West Hollywood.

She said there is no guarantee any applicant will get a license. Approvals are merit-based, and there are a limited number of licenses – 40 in all.

The categories for the licenses include: eight adult-use retail business licenses; eight medical-use dispensary business licenses; eight consumption area for smoking, vaping and ingestion with on-site adult-use retail business licenses; eight consumption area business licenses only for edible ingestion, with on-site adult-use retail for sales of products consumed on site; and eight cannabis delivery service business licenses for delivery services based in West Hollywood – with no limit on the amount of business licenses issued for cannabis delivery services located outside of the city limits that deliver cannabis to customers in West Hollywood.

The Standard Hotel did not respond to additional requests for comment.

Amir Sadr, a transactional attorney with Cox, Castle & Nicholson who regularly advises and represents commercial real estate owners aiming to do business with cannabis operators, said West Hollywood is one of the more popular neighborhoods.

"Certain areas in West Hollywood are densely populated with both residents and visitors," Sadr, who is based in the Irvine office, tells CoStar News. "Like most traditional retailers, cannabis dispensaries want to be in an area with high consumer demand and heavy foot traffic."

Sadr is already seeing the impact of cannabis on commercial real estate in Los Angeles.

"Overall, we have seen rents double or even triple for retail and industrial property zoned for legal cannabis operations," Sadr said.

Jeff Puffer, president and CEO of Delphi Business Properties, Inc., agreed cannabis operations have boosted prices.

Chris Bowen, president of CannEdge, a Santa Ana-based medical marijuana real estate company with a portfolio of licensed medical marijuana businesses and properties, said he is also noticing the legalization of marijuana's impact on the local industrial market.

"Savvy investors are closing all-cash on big buildings," Bowen said, referring to industrial buildings for both retail and industrial uses. "Access to capital is the biggest hurdle with many buyers using options, seller financing, or hard money loans."

While the legal use of recreational marijuana was approved in 2016 in the city of Los Angeles, it is still not allowed in unincorporated parts of Los Angeles County, Sadr said. The City of Los Angeles began accepting applications Jan. 3.

For those who sell cannabis products, customers must be at least 21 years old.

There is something else the Standard Hotel and all applicants must take into consideration when applying.

"State law does not allow for alcohol and cannabis to be sold at the same location," Rocco said.

Any business that sells cannabis products must have a state license and approval from its local jurisdiction to operate.

Rocco said she anticipates West Hollywood staff will be working through the summer on the applications because there is so much interest.

There are also other issues for applicants, according to Sadr.

"Cannabis is still federally illegal under the Controlled Substances Act and, therefore, most traditional lenders will not permit cannabis operations on property secured by a loan," Sadr said. "This significantly limits the pool of possible locations for cannabis operations."

Mark Kleiman, professor emeritus of public policy at UCLA, is now at NYU and is a drug policy expert. He said cannabis sales are a matter of state law versus federal policy.

"Selling weed isn't just ‘a business that some might consider illegal,’" Kleiman said. "It's a federal felony. But as far as I can tell most people don't find that a turn-off, in part because they think, as I do, that the federal law in question is plain silly."

Marijuana stocks surged today after news that President Donald Trump has endorsed allowing states to make their own decisions when it comes to regulating cannabis sales, according to Bloomberg.

He also commented on the possibility of hotel sales.

"I don’t know of any state where you can buy it in a hotel lobby," Kleiman said.

The cannabis industry is expected to grow at an annual growth rate of 25 percent, from $6.7 billion two years ago up to an estimated $20.2 billion by 2021, according to Arcview Market Research.

There are now four places in West Hollywood where cannabis products can be legally purchased. They are medical dispensaries currently operating under temporary licenses and include: Alternative Herbal Health Services at 7828 Santa Monica Blvd.; the Los Angeles Patients & Caregivers Group at 7213 Santa Monica Blvd.; MedMen West Hollywood at 8208 Santa Monica Blvd.; and Zen Healing at 8464 Santa Monica Blvd.

The city is scheduled to release final screening applications next week for those wishing to open businesses, selling marijuana in the city. The release includes a lengthy list of criteria.

West Hollywood will then begin accepting applications for a 30-day period, beginning May 2, according to Rocco.

Karen Jordan, Los Angeles Market Reporter  CoStar Group   
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