PharmaCann, based in Illinois, runs a medical cannabis dispensary under the “PharmaCannis” brand in the Hunts Point section of the Bronx at 405 Hunts Point Avenue, one of only four such facilities in New York City.
While medical marijuana became legal in New York State in 2014, the state’s stringent regulations have prevented a mass influx of dispensaries from opening. But it is a serious business with serious people behind it, including Jeremy Unruh, 46, the company’s Chicago-based chief compliance officer and director of external relations who holds an M.B.A. from DePaul University and a law degree from Washburn University.
Unruh served as Assistant State’s Attorney in the office of the Cook County (Illinois) State’s Attorney from 1999 to 2006, working on everything from traffic cases to crimes involving child victims. We spoke with Unruh about the real estate challenges of establishing a medical cannabis dispensary in a city and state that have welcomed such facilities with less than open arms to date. (He found it thanks in part to Century 21’s Austin Goodman.)
Commercial Observer: When did the Bronx facility open?
Jeremy Unruh: Nov. 7, 2016.
Why did you choose the Bronx for your New York City facility?
Selecting real estate in the cannabis space is a complicated and tricky proposition. There’s a lot to navigate, whether it’s the local zoning or local decision-makers. The New York statutes, unlike in other states, do not break down the geographic requirements for these dispensaries, apart from saying that the state’s Department of Health has a duty to ensure a geographic distribution of dispensary locations. So we were able to select any municipality we wanted that was comfortable having us but had to make sure our geographic distribution was consistent with what we thought the state wanted to see, which was not to locate all four of our dispensaries in the five boroughs. [In New York State, the company has dispensaries in Amherst, Liverpool and Albany. They also operate four in Illinois.]
What were some of the New York State requirements you had to meet?
We had to refrain from locating a dispensing facility on the same street or avenue as, or within 1,000 feet of, a building occupied exclusively as a school, church, synagogue or other place of worship. That’s tricky in a major metropolitan area. The real trick, however, was navigating the permitting and approval process. It took us an extra six months or so to get the Bronx location up and running because of the permitting process, whether it was building permits, subsequent inspections for certificates of occupancy, fire safety inspections—everything took a lot more time and effort than we thought it would. I don’t know if that’s unique to the cannabis space or just a function of trying to get something built in New York City.
Can you walk us through some of those requirements and restrictions, and how they extended the process?
We got caught between the automated fire inspection permitting process and our efforts to expedite these inspections. We used our local community relationships to get moved up in the fire inspection queue. Unfortunately, when we were rescheduled, we were dropped from the automated inspection queue, so we had to wait several months. Fortunately, the borough-permitting supervisor was good to us, issuing us temporary certificates of occupancy based on our exigent circumstances and our level of fire and security monitoring equipment.
Did you have any kind of special communication with representatives of the city or state as you were going through the whole process, specifically because you’re a cannabis business?
There was nothing mandated, but there is very much a sentiment of “not in my backyard” that we had to navigate. So the smart players—and I hope we’re smart players—spend a lot of time and effort reaching out to local decision-makers, whether it was our state representatives or our City Council member, affirmatively getting in front of those folks to explain what it was we were doing and what we were not doing. Once you can have that conversation, nine times out of 10 you can turn an “I’m not sure” into a “Yes.”
When you began the location search, did any real estate brokers turn you down because of the nature of your business?
Yes, definitely. Brokers are third-party vendors just like lawyers, and I’m a lawyer by trade, so I know that professional services world pretty well. What I’ve learned is that third-party vendors come in two categories. They’re either, “Well, I’m not sure if we could do it, but maybe as a favor,” or, “I love what you’re doing. I don’t know that we can do it, but we are all in, and we’re going to figure out a way.” I learned very quickly, in this cannabis space, that I don’t have time for category A.
You have an interesting background for someone spearheading a medical cannabis facility. Are there ways that your background as a government prosecutor helps you in this endeavor?
No question because I understand what the state regulators are looking for. When they write a regulation, there is a policy reason behind that, and as long as you can identify what that policy reason is behind that regulation, that helps you navigate and stay on the right side of it. I also understand that these regulators are oftentimes generalists; they’re not necessarily inventory control experts or real estate experts or architectural experts or security experts. So you have to figure out how to communicate issues of expertise in language that they’ll understand.
Talk about how you found the location.
The location we ended up with was not our first one. We had an issue with the landlord [at the first one], who was not comfortable with what our use was. So we basically had to do a search twice. Also, our typical patient is a 50-something person with cancer, and those people tend to be crutched or walkered in. So, curb cuts, access to the front—these are important pieces of our puzzle. The ability to build out, internally, very sophisticated security systems and to install a security room and have a bolt in there. Those are the nuts and bolts of what our retail locations need.
Where was the first location?
The original space was at 1280 Oak Point Avenue, near our current location. We didn’t love it, but it was suitable in terms of parking, frontage and interior space. The space fell through because it needed significant work, the terms were not favorable to us, the current location became available and the [new] landlord, Hunts Point LLC, was much more amenable to our use.
How far did you get in that first location—had you signed a lease?
We had signed the lease, but there were several contingencies that allowed us to opt out.
How long was this whole search?
As this was coming together, were there any other external factors that made it more of a challenge?
That second location needed a lot of TLC. It had a lot of issues, and maybe that’s a function of being in the cannabis space, too—-the only places you can really lock down need a lot of help from a physical improvement perspective.
So great locations are not looking to host cannabis businesses right now?
Well, they weren’t at the time, two years ago. This sentiment has changed a bit, because New Yorkers now have a better picture of what the medical cannabis program looks like. I suspect if we had to go out and engage in that same search now, we would find significantly more landlords or owners who would be receptive to having us there.
What is the length of your lease?
What is your rent?
Around $7,000 to $9,000 a month.
What was the greatest challenge for you throughout this process?
The timelines. There’s a timeline involved in applying for the license, so you’ve got to get everything [within a certain time frame]. Our New York State application, which included our site in the Bronx, was 40,000 pages, in 22 [cardboard] boxes. Aggregating all that stuff and managing the timeline before we knew if we were going to get a license was a very complex and expensive dance. Then, after the licenses were awarded, there was an obligation for us to get up and running, operational, within six months. That included having products on our shelves at the dispensary. The Bronx location was not open for some time after that six-month deadline, but we as an organization met that deadline by having some of our other New York facilities open.
What went into that application that required 40,000 pages?
Security, inventory control, operations, dispensing and handling controlled substances and other plans. These plans were often hundreds of pages long. We also had to include tax returns and other background information on all of our owners and affiliates. It also included permit-ready schematics for all five of our facilities [one cultivation center in Hamptonburgh, N.Y., and four dispensaries including the Bronx one], standard operating procedures, construction timelines and on and on.
Were there any regulations or laws or anything you bumped up against throughout this process that struck you as especially senseless or unnecessary?
There are a lot of them. These dispensaries are not akin to what I would call “vice” locations—tattoo parlors, smoke shops, vape shops. These dispensaries are really a piece of the health care puzzle. I don’t have a similar data point for New York, but in Illinois, the Department of Public Health has informed us that the standard profile of one of our patients is a 55-year-old white woman with cancer. In New York, I can tell you anecdotally that it’s very similar. When the state treats these facilities like they’re vice facilities, that’s reflective of your location, and that’s too bad because you’re driving patients who were sick into locations that aren’t necessarily optimal for their treatment.
Was there any part of this where the legalities were not as clear as you might have liked?
That’s an inherent part of being in an industry that’s brand new not only to us as operators but also to state regulators. None of them had any experience in this either. So when they got out their pen and paper and drafted these regulations from scratch, it was a steep learning curve on both sides of the aisle. We really had to marry up those interests. From a real estate perspective, we had some challenges interpreting the regulations the same way the state did. For example, the state took a very restrictive view of the secure room in which we have a GSA-5-rated safe for storage of cannabis. We were required to build a hard wall from the floor to the roof deck separating the patient area from the dispensing area, presumably to ensure that a 65-year-old cancer patient didn’t crawl up into the ceiling and over the wall. We felt this was a bit unnecessary since all cannabis is stored in a safe that would take the right person with the right tools 45 minutes to break in. It’s overkill, to say the least.
What were some of the biggest differences, from a real estate perspective, from opening a dispensary here to opening one in Illinois?
The Bronx dispensary was a real outlier when it came to us getting operational, because it’s more than just building out. We install incredibly sophisticated security systems. We have 30 or 35 cameras in each of our dispensary locations. We have access control with electronic locks on all of our doors. We’ve got primary and back-up intrusion detection systems in New York, which two security systems companies installed and are maintained by separate companies. We were able to martial those resources until we came to the Bronx, because we were stymied by the local building permitting and inspection process—the certificate of occupancy process. It made life incredibly complicated for us. Managing the unions was a challenge, too, because if something didn’t get installed right, we had to wait a long time to get the guys back in to fix it. You can’t have your inspection until that piece of the puzzle gets fixed, and you can’t directly address the sub-subcontractor because you’re violating the union structure. So that was challenging to us, too.
Could you expand on the permitting and inspection process? What specifically was difficult about it?
We found it to be byzantine in nature. There is an automated permit inspection request portal, but little to no way to interact with a live person to get a sense for how the entire process is supposed to work. Obviously, the New York City Department of Buildings has a lot to manage, but unless one was an expert in navigating the process, one was at a serious disadvantage.
Now that you’ve been through the entire process, what changes would you like to see made to the laws and regulations regarding all this?
I would like for us to be treated like any other commercial retail business because that’s truly what we are. Our goal is to be normalized commercially. I don’t want to be treated any differently than any other commercial enterprise, whether that’s from a real estate perspective, a banking perspective or a regulatory perspective.
Given the current political environment, do you have any confidence that may happen sometime in the near future?
I’m confident that as these programs develop, lawmakers are becoming inured to the fact that medical marijuana is coming to town. I think they become supportive because the constituencies for whom medical marijuana is important are loud constituencies—cancer survivors, mothers of little children with epilepsy. These are very vocal constituencies. And then, they begin to see that it’s revenue positive. It doesn’t cost the state anything, and it generates revenue. [There’s a] progression from “the sky hasn’t fallen” to “we’re managing our active constituencies” to “hey, we can generate some revenue responsibly by doing this.” That’s the transition we’re seeing take place.