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Real Estate Markets Are Getting High Off Legal Marijuana

2 minute Read

With marijuana legalization having spawned a booming, multimillion dollar industry, it’s no surprise the new laws cropping up around the nation would have an effect on the real estate markets in green states.

The John Marshall Law School recently examined the impact of medical marijuana on real estate by inviting a panel of experts, including lawyers, investors, and real estate developers, to the school’s Center for Real Estate Law.

“As a ‘disruptive innovation’ from illegal to legal, the [cannabis] industry calls for a response from communities where the cultivation and distribution of medical marijuana occur,” said Professor Celeste Hammond, director of the Center for Real Estate. “In what has been called a ‘legality innovation’ the law will respond.” Properties that house different sectors of the cannabis industry will affect not just land use restrictions, she said, but will ultimately have implications for banks, title insurance, real estate leasing sites for marijuana to be cultivated, manufactured, and sold, and even climate change as the industry requires massive amounts of water and energy. “The disruption is more exciting and more important than I imagined,” Hammond said.

Experts often argue that cannabis legalization is good for property values. Using Colorado as an example, the state’s house market has seen an incline over nearly three years. Some credit this to Colorado’s liberal cannabis policy and the industry it’s fostered.

“There has been a huge bump in real estate prices due to the legalization of marijuana,” said James Paine, managing partner at West Realty Advisors. “It’s massively pushed up raw land and industry prices.” Within just over a year, the median sales prices for homes in Denver increased by $32,500, or 11 percent, while the average price per square foot rose from $276 to $308.

This spike isn’t only happening in Denver, but in the entire state. In 2012, when the state legalized adult use marijuana, the median price of a house was $200,000, whereas now the median listing is $369,000. In California, too, and other states where adult use marijuana is now legal, real estate prices are soaring. “Last year, you’d have paid about $2.5 million for a 10-acre parcel with greenhouses,” said commercial broker Chuck Allen with Keller Williams Realty in Monterey, California. “Today you’d pay $5 million.”

Landlords are also able to bank on renting out empty warehouses, a valuable commodity for cannabis entrepreneurs who need an isolated, discrete location to cultivate weed and manufacture products. Between 2010 and 2015, the average leasing price for a warehouse in Denver increased by more than 50 percent.

Cultivation facilities, concentrate manufacture facilities, and dispensaries all present a different set of risks and liabilities, which intersect with zoning and insurance considerations — which landlords and real estate investors use to jack up prices. For example, marijuana businesses cannot be within a certain distance of schools or houses of worships, while manufacture facilities, particularly where butane is used as a (potentially explosive) solvent, present a risk to neighboring properties. And with regard to cultivation facilities, property managers need to be conscientious of mold issues and other damage that could come from the elements required for growing cannabis.

Landlords are also vulnerable to having their properties seized by the federal government, since cannabis, and the cannabis related businesses operating in legal states, are still federally illegal.

Because of the the legal baggage and vulnerabilities that come with hosting a marijuana business, landlords are able to charge premium prices, which may be in part why market values have skyrocketed where weed is legal — along with regular people wanting to live free of prohibition.

In fact, weed real estate is so lucrative a market that the New York Real Estate Journal will be hosting a seminar on the topic, in a Trump building, no less, despite the president’s pick for an anti-weed attorney general, Jeff Sessions.

“This is a new segment of the industrial real estate market that is being created in front of our eyes,” said George M. Stone, a longtime real estate executive now focused on cannabis. “It’s a huge industry and only getting bigger.”

Real Estate Markets Are Getting High Off Legal Marijuana