In November 2012, 56 percent of Colorado voters passed Amendment 64 which legalized the sale and use of marijuana for recreational purposes. Since, several other states have followed suit. Many more states have medical marijuana programs; however, the federal government.
So how will the legalization of the sale and use of marijuana for recreational purposes affect real estate?
Let’s look to what has happened in Denver. A recent CBRE publication states that one in 11 industrial buildings in central Denver is full of marijuana. The state’s cannabis industry occupies between 3.7-4.5 million SF of industrial space in Denver.
What kind of space do the growers prefer?
They seek low-profile space that is between 25,000 & 50,000 SF. The look for ample power and water as well as good ventilation. Industrial brokers report instances of warehouse space leasing for as much as four times the prices paid before medical marijuana sales began to boom in 2009.
In Denver growers are paying up to $15 /SF/YR for electricity and over $100 /SF/YR in TI’s. Since 85% of industrial space is encumbered by a commercial loan and the another 5-10% of owners won’t lease to growers for moral or ethical reasons, that small area of 5-10% of the market is becoming quite expensive. With a small level of available supply and greater demand, the price for viable space is about $20 /SF NNN. Dispensaries seek small retail spaces away from schools, parks and residential areas. We have not seen an economic impact at this point.
The state of CO imposes a 25% tax on recreational marijuana sales, which is estimated to have generated $134 million inf 2013-2014.
Supply is not meeting demand in Denver. Experts say that Nobody is growing enough marijuana.
In Washington, the state requires that growers sell to retailers rather than a direct-to-user sale from growers. The state taxes both transactions which leads to about a 45% tax rate. The externality generated by such high tax rates is a black market where the majority of transactions occur in the parking lot of a retailer.
Other Tidbits of info
The federal government does not allow the use of credit cards for marijuana transactions.
Most pay with checks or money orders and only 5-10% pay with cash
What about my state: AZ?
Currently, the use of recreational marijuana is not legal. If the Arizona Marijuana Legislation is placed on the ballot and subsequently approved by voters it would become legal for adults age 21 and up. The state would also levy a 15% tax on the sale of the grass. The revenues would go toward healthcare and education. As in other states, the effect on retail storefronts would be minimal due to its relatively small size. The Arizona Marijuana Legalization Initiative may appear on the November 8, 2016 ballot in AZ.
The production side could have an impact on real estate. It really depends on the legislation concerning zoning regulations for cultivation centers. You can only be so close to schools, churches, public parks, and residential areas. In Arizona, each city would be responsible for its own zoning laws. Obviously, the city with the friendliest weed laws would attract cultivation centers, thereby increasing the value of industrial space that’s well suited for plant life.
It is interesting to see how HUGE the impact of pot legalization is having on the demand for industrial product in cities like Denver. I know that I will be ready to CAPITALIZE in the event that it becomes legal in other states.