Jeremy Plumb is watching the parade of marijuana investors bound for Oregon—and predicts the green rush could be headed for problems.
Plumb has grown marijuana for nearly 25 years and aims to become a licensed recreational grower in addition to operating his dispensary Farma on Southeast Hawthorne Boulevard. (He's already a medical marijuana grower, but Oregon's recreational system is regulated separately.) He says he's heard from and about a flood of out-of-state investors in the past year seeking to get rich quick by producing massive amounts of marijuana.
"There's going to be massive speculation, unrealistic expectations and epic flops," Plumb says.
Not everyone shares Plumb's view. But as Oregon's recreational marijuana market approaches the June 2 date for launching the sale of edibles and concentrates, it's clear that investment dollars—many of them from out of state—are shaping the new industry.
Already, the Oregon Liquor Control Commission has received 658 applications to grow recreational marijuana. Earlier this year, the Oregon Legislature removed restrictions that kept out-of-state investors from financing those growers.
It's far from clear how large the Oregon market in recreational weed can become. Yet investors are making huge bets on marijuana grow operations, grabbing up any warehouse space they can find in the Portland metro area.
And there are few better examples of big money underpinning the explosive future growth of the Oregon weed market than Spencer Noecker.
Until a couple of years ago, Noecker, a 31-year-old California native who graduated from the University of Oregon, was just another up-and-coming real estate investor.
But in 2014, Noecker and his sister and business partner, Lauren, went on a buying spree funded largely by Nicolas Berggruen, a Los Angeles billionaire with property interests all over the world.
Berggruen is no stranger to Oregon. A decade ago, he invested $80 million in an ill-fated Clatskanie ethanol plant ("Corndoggle," WW, April, 7, 2009). His other investments have fared far better. On April 17, the Sunday New York Times business section described a new think tank he's funding, the Berggruen Institute, as a Davos-like gathering of elite intellectuals, but in Los Angeles.
"Mr. Berggruen stands out," the story said, "because he is a little-known but well-connected player at the nexus of wealth and rumination."
In 2014, Spencer Noecker says, he believed industrial real estate—specifically, warehouses—was significantly undervalued. Residential and commercial prices had already spiked. And warehouse prices in Washington and Colorado were going crazy, driven by new demand from recreational marijuana investors in those states.
Oregon voters legalized recreational weed Nov. 3, 2014. Less than two months later, on Dec. 31, 2014, Noecker bought his first warehouse—plunking down $3.65 million for a 49,000-square-foot building in Northeast Portland. He then went on a buying spree, acquiring four more warehouses in the next six months. In all, Noecker bought just over 400,000 square feet of warehouse space in the span of six months, spending $26 million.
Don Ossey, a veteran real estate broker with Capacity Commercial Group who represented the seller in one of those transactions, says the surge of interest in commercial indoor marijuana grow operations tightened an already red-hot market.
"Last year, there was a lot of activity," Ossey says. "Now, there's nothing for sale."
Noecker did well by getting in early. Ossey says prices went up at least 10 to 15 percent in the past year, and Noecker's company has already taken advantage of the stronger market. Records show that on April 7 the company sold a 70,000-square-foot warehouse on Swan Island for $6.25 million—almost $2 million more than they'd paid for it less than 14 months earlier.
Noecker didn't stop at buying warehouses. He also struck a deal to purchase an established Hillsboro nursery called Duck Holdings Nursery LLC, for an outdoor growing operation. The nursery acquisition turned into a court battle, which made public the Noeckers' grand plans.
An email Lauren Noecker sent to the seller of the nursery gave a sense of the scope of their ambitions: "We have 350K square feet of prime industrial [warehouses] under contract," she wrote in January 2015. "The nursery is an added interesting component."
But last year, as the regulatory environment around recreational marijuana became clearer, Spencer Noecker came to a realization: He had to choose real estate or weed. Bankers won't lend money to anyone involved in the marijuana business, and even with Berggruen as an investor, Noecker's real estate operation borrowed regularly.
So Noecker quit the real estate partnership and bought one of the warehouses and the outdoor grow operation. Berggruen has no involvement in his weed business.
Noecker's companies have applied for 13 recreational licenses from the OLCC, the regulator of recreational weed—11 retail licenses and two production licenses.
Plumb, who says he doesn't know Noecker, worries that investors with no historical allegiance to the business will turn Oregon marijuana into a commodity like corn or soybeans.
In commodity markets, producers produce large volumes of undifferentiated products. They compete on price and often make thin profit margins. Plumb says the marijuana market in Portland should be more like the beer, wine and coffee markets in which consumers want top quality.
(Disclosure: Plumb has been an unpaid consultant for a WW-sponsored marijuana event, Cultivation Classic.)
"The generic model just isn't going to work here," he says. "I don't think warehouses flooding the market is going to fly like it has in Colorado and Washington."
Still in its infancy, the Oregon recreational pot market is growing fast.
Tax receipts from recreational marijuana through existing medical marijuana dispensaries are averaging nearly $3.5 million a month—vastly exceeding expectations.
Although the OLCC strictly limits the amount each licensee can grow, there is currently no limit on the number of licenses an individual can obtain or the overall number of licenses that will be issued. Noecker says some growers believe the law allows splitting of tax lots—in other words, lining up several different licensed grow operations in one building or on one piece of land. "If you can split tax lots, there's going to be a race to the bottom, and that will wipe out the small growers," Noecker says.
One example of that is New York-based Kalyx Development's 107,000-square-foot Eugene warehouse. Kalyx bought the building for $3 million, The Register-Guard reports, and plans to spend millions dividing it into multiple 10,000-square-foot grow sites.
OLCC spokesman Mark Pettinger says multiple licensees may operate in a large warehouse but they must have distinct ownership—one large grower can't operate five or 10 licenses at a single location.
But despite the concern that big-money players may oversupply Oregon, Noecker walked away from a thriving real estate business. "Look, people are still opening breweries and distilleries every week, and those are mature industries," he says. "I think the upside for marijuana is almost infinite."