How Legal Marijuana Shapes Real Estate Trends

How Legal Marijuana Shapes Real Estate Trends

We're not making this up. Legal marijuana is proving to be a (positive) force in shaping real estate trends. We'll explain.

While the growth of legal marijuana has been fueled, in large part, by the plant's ability to help an ever-growing number of people deal with a wide variety of health conditions, the list of benefits that legal pot provides does not end there.

In addition to its medicinal qualities, legal marijuana has helped slow down drug trafficking, reduce drug-related crime, and generate considerable tax revenue that cities and states have used to fund public health programs, anti-opioid treatments, student scholarships, the rebuilding of public schools, and more.

Legal marijuana’s economic impact has extended to real estate trends, as well.

High Notes: Marijuana News Nuggets
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As the New York Times examined, the more than two dozen states that have legalized pot have seen a boom in the number of factories, warehouses, self-storage facilities, strip malls and other commercial properties that have been repurposed for the cultivation, processing, and sale of marijuana plants and products. While no one knows exactly how long the current marijuana real estate boom will last, this increased demand for commercial space means that, for now, landlords and property owners are charging those in the marijuana business well above market value for their properties. And they're normally getting their asking price.

According to National Real Estate Investor, the biggest jump in property prices can be found in states that have legalized marijuana for recreational use — states like Maine, Massachusetts, Nevada, California, and Colorado.

In Costa Mesa and Santa Ana, for example — two cities in Orange County, California — the marijuana industry has caused industrial property values to nearly double in the past 12 months. There are also some neighborhoods in the country’s unofficial legal pot capital of Denver, Colorado, where the average asking lease price for warehouse space rose by more than 50 percent between 2010 and 2015.

As the Times points out, the demand for retail space is just as hot. As of 2015, there were roughly 200 marijuana stores in Denver — five times the number of stand-alone Starbucks stores — occupying properties from high-end storefronts to shuttered gas stations. Landlords typically charge two to three times market rates for these spaces.

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“It’s a tax these guys are used to paying because it’s still federally illegal,” Brian Vicente, a partner at a Denver law firm that specializes in marijuana issues, told the Times.

Marijuana producers put up with the high prices because they don’t really have a choice. Federal law blocks interstate commerce, which means pot must be grown in the same state where it’s sold. As result, not only do growers have to absorb high property costs, but they also have to spend huge sums of money to retrofit old warehouses in order to properly cultivate cannabis. Those costs include huge water and electricity bills, as well as the implementation of climate controls and much-needed privacy and security measures.

Marijuana growers who want to cultivate their crops outdoors face an additional maze of zoning and land use issues, stifling regulations, and pushback from other, more “traditional” farmers. 

While there are more questions than answers about the future of the legal marijuana industry, growers and retailers are going full force right now because the opportunity for profits is simply too good to pass up — even with the considerable overhead.

Changes may be coming later on, but for now legal marijuana is certainly a positive influencer on real estate trends.