Wow.
The bright lights of Bahama Mama’s flagship store along Lower Westheimer turned on a year ago, welcoming passersby into a hemp shop unlike anything else in Houston. A red carpet rolled into a mirrored showroom stocked with nearly every type of legal hemp product and accessory imaginable. A Las Vegas-like mix of color, chrome and cannabis culture gave the 5,000-square-foot boutique an Instagram-ready vibe.
The bold design reflected Bahama Mama’s even bolder real estate strategy. Over the past five years, the company has filled more than 115,000 square feet across 85 stores in Texas, including more than 50 in Houston. CEO Greg Laird said the brand pays about $7 million in rent and $3 million in sales taxes annually in Texas.
All of that could disappear if Gov. Greg Abbott does not veto Senate Bill 3, which would ban hemp-derived THC and nearly all CBD products starting on Sept. 1. Although Bahama Mama holds a large stake in each store, they are jointly owned with the independent operators who personally invest in their shops.
“That’s 85 operators who could lose their livelihoods (across Texas),” Laird said, in addition to their 200 Houston-based employees.
Bahama Mama is just one of thousands of shops in Texas facing this potential wipeout. The hemp industry has ballooned into a sector with $5.5 billion in annual sales supporting about 53,000 jobs across 8,500 businesses, according to a recent Whitney Economics report.
In the Houston area, more than 1,500 businesses are licensed to sell hemp, according to a Chronicle analysis of Texas State Department of Health Services data. About 400 of those are smoke or vape shops that rely heavily on hemp products.
Most of those 400 stores could be forced to close if the ban takes effect, dumping between 600,000 and 815,000 square feet of retail space into the market. That equates to roughly the square footage of Toyota Center. While that is a tiny piece of Houston’s 446 million-square-foot retail space market, for the tenants who fill those spaces, the shutdown could be devastating.
The fallout will be felt most sharply by tenants and small business owners who may lose their stores, investments and life savings. Meanwhile, landlords will be left scrambling to backfill space or resolve lease disputes.
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Most tenants can’t simply walk away. Many signed personal guarantees, allowing landlords to pursue personal assets if rent isn’t paid. That puts homes, savings and vehicles at risk.
Melanne Carpenter, co-owner of Serenity Organics in Missouri City, said her landlord leased to her in part because she had a corporate job and signed a personal guarantee. She and her husband took out a business loan, which they’re still repaying. Her $4,300 monthly rent is sustained by a loyal customer base of mostly suburban parents who use hemp for anxiety, insomnia and chronic pain.
Tucked in a strip center near Chick-Fil-A, Serenity Organics has a spa-like design. Nearly all wellness products, from tinctures to dog treats, contain trace amounts of THC. If SB 3 is signed, she’ll likely close Aug. 31.
Carpenter, who is also a retail real estate agent, expects a wave of defaults.
“You’re talking about a lot of empty space. It’s going to affect landlords, because they’re going to have vacant space, and they’re going to have it very, very quickly.”
The uncertainty comes just as she’s weighing whether to renew her lease. This time, she’s trying to negotiate an exit clause, something her original lease didn’t include.
Some tenants secured exit clauses allowing them to break leases if regulations change. But these clauses aren’t universal, especially if landlords used boilerplate language in the lease. And some tenants didn’t know to ask for an exit clause.
At the aggregate level, this is a small piece of the real estate market, which is currently in good shape and likely can withstand the hit. But that’s still a lot of people who are going to be unemployed or in the lurch financially as a result. You know what I think should happen next, whether Abbott does veto this bill or not. That’s primarily going to be on campaigns and candidates, but if you frequent one of those 400+ locations, you might mention to the owner and/or the employees who they can thank for their current situation.
Side note #1: I wonder how much of that $5.5 billion in annual sales is within Houston specifically. Whatever happens to the real estate, that could be a significant short-term blow to our sales tax revenue.
Side note #2: There are now two of these shops within walking distance of my house. I can’t say they add anything to the character of the neighborhood, but whatever, they’re there and they don’t seem to be a problem. I don’t think either of them has been there for much more than a year. The law that (inadvertently) allowed these shops to open was passed in 2019. I wonder what percentage of these places are more than, say, three years old.
I have 5 within 1 mile of my house, plus a legal medical weed shop. The 2018 farm act was never intended to open up legal weed in Texas. These business all knew that and knew they were operating in a legal gray area that could disappear at any moment.
I love how people just dismiss this because “they” don’t like it. I don’t like seeing children shot up in schools, or having my healthcare ripped away in the name of “freedom”. I have had mental health issues forever. These items have done more for me than the dozens of medications I was prescribed. But who the hell cares about any good that it does.
Meanwhile, another liquor store opened in my neighborhood.
“Conservatives” are wonderful people. All they do is bitch, complain and take.
Wade: It was not a “gray area.”The law was poorly written and had unintended consequences, granted, but there has never been any doubt whatsoever that these shops were operating entirely legally.
Patrick and the Lege are simply sacrificing small businesses to their own agenda and acting like it isn’t their own fault. So, hypocrites, but we knew that.
The “gray area” argument would hold a lot more water if the law in question was one year old rather than six.
No, this is just another example of gleeful dickishness.
NOTHING UNUSUAL
A lease is a contract and any contract requires two contracting parties to agree on everything.
So, you can hardly complain about being stuck with the terms you signed on to, unless the terms are themselves against the law. I don’t know whether a change in the law from (arguably) legal to illegal would be grounds to invalidate a lease as a against public policy even if there is no exit clause contemplating that scenario but the lease specifies the nature of the business. That might be an interesting question to explore with a lawyer if there is money for one.
As for personal guaranties on loans, that’s standard too for small businesses, even if there is no legal uncertainty as to the nature of the business. If you don’t want to take the risk, don’t do it. Instead of starting your own restaurant, wait tables. Then you can take your talents elsewhere if the restaurant closes. Your assets, if any, won’t be on the line.
For some people who are on the hook for business debt, it may make sense to file for bankruptcy.
Soon after this issue came to the forefront in TX, my on-line ‘gummy provider’ emailed all their TX customers to let them know services will not be disrupted as orders will continue to be filled and mailed out of OK (instead of TX) and will be ‘discreetly’ shipped, i.e. in a non-descript box so as to not alert the authorities (I had already made plans to have my product shipped to a friend in a neighboring State, then shipped to me).
Probelm solved, Dan-O.
Mollusk – TX lege only meets every 2 years. While a few stores existed the vast majority of them are less than 2 years old. Also only in the past 2 years did THC infused beverages start appearing in Spec’s and Total Wine.
Joel – disagree. The farm act intended to legalize hemp with less than 0.3% Delta-9 tetrahydrocannabinol THC. Products are being sold that contain 100 times that. The loophole is how it is measured – either before or after decarboxylation.
Wade, that’s kind of my point. Not only could a special session have been called if this were a true emergency, we’ve had an election cycle followed by a regular session which could have passed some cleanup legislation if there was the public and/or political will for it. Only after all that did the majority of the outlets open up.
Wade, can you point me in the direction of a local vape shop that’s selling 30% (by dry weight) Delta-9 tetrahydrocannabinol THC gummies ? Both Dan Patrick and I need to patronize that store !