Gravel2Gavel Construction & Real Estate Law Blog
Legalized cannabis use is rapidly sweeping the nation. Currently, 29 states have legalized some form of cannabis, effectively turning the majority of the United States green. In this post, we will take a closer look at some of these green states and discuss cannabis real estate trends across both state and country lines.
As a whole, the United States cannabis industry is booming and is steadily becoming a major player in the nation’s economy. In 2017 alone, medical and recreational cannabis sales were nine times higher than America’s beloved Oreo cookie. This year, marijuana sales are projected to reach $10.8 billion, effectively outpacing McDonald’s annual U.S. revenue. By 2022, marijuana sales are estimated to reach between $62.8 billion to $77.4 billion.
This rapid movement towards legalization began in 2012, when Colorado became the first state to legalize recreational marijuana. However, the Centennial State began experiencing its real estate green rush as early as 2009. Between 2009 and 2014, 35% of industrial spaces in Denver were leased to marijuana-related businesses. By 2016, Denver industrial properties sold at premium prices of $115 per square foot. While marijuana sales continue to be on the uptick in Colorado, the state’s cannabis real estate market has started to stabilize, particularly in Denver, which recently capped the number of grow facilities allowed to operate in the city. While this is the case, marijuana-occupied properties in Denver and surrounding areas can still expect to pay 25% more than other industrial tenants for Class B and Class C warehouses.
One of the most successful green states since Colorado’s legalization has been Nevada. Since Nevada’s initiative took effect on January 1, 2017, its recreational marijuana market has exceeded expectations. During the first six months of sales, Nevada saw more than $30 million in tax revenue, with retailers selling more than $195 million in cannabis products. New Frontier, a cannabis analytics firm, projects that the state’s legal marijuana market will be worth $622 million by 2020. Nevada’s success is largely attributed to its tourist economy in Las Vegas, which attracts approximately 40 million tourists every year. This high demand, combined with Nevada’s low property and energy costs, has led to marijuana companies investing more than $300 million in Nevada real estate.
Washington D.C. has had one of the more interesting cannabis legalization stories. The use of recreational marijuana was legalized in Washington D.C. in 2014, however, it is still illegal to buy and sell the drug due to Congress prohibiting the District from spending any funds or resources to develop a regulatory system for marijuana sales. This has resulted in D.C. developing a unique “gift economy” industry, where consumers buy overpriced items such as coffee cups and t-shirts, which include a budding gift with purchase. Additionally, due to the sparsity of industrial space, it is especially difficult in D.C. to find warehouses suitable for cultivation, leaving most entrepreneurs limited to operating medicinal marijuana retail shops.
The other seven states that have legalized recreational marijuana are Washington, Alaska, Oregon, Maine, Massachusetts, California, and Vermont. The other twenty states that have legalized the use of marijuana solely for medicinal purposes are Arizona, Montana, Connecticut, Delaware, Florida, Hawaii, Maryland, Michigan, Minnesota, Montana, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Pennsylvania, Rhode Island, Vermont, and West Virginia. In each of these states, a land grab has occurred with one overarching trend – the early bird gets the worm. Investors have realized that the key to success in this industry is finding the right property as soon as possible, making states on the verge of legalization, prime targets for cannabis real estate. Voters in Michigan, for example, will not decide on whether to legalize recreational marijuana until November of this year. However, Harvest Park Development, which is set to become one of the largest marijuana business parks in Michigan, is currently selling lots at $149,000 per acre, which is more than twice the price that is normally charged for similar, light industrial space in the area. Other states on cannabis watch include New Jersey, Oklahoma, Utah, Missouri and Virginia.
While the American green rush is in full effect, nothing is quite like what is happening in our neighbor to the north. Later this year, Canada is set to become the first developed country to fully legalize the cultivation, distribution, and sale of all cannabis products. At the end of 2017, more than 722,000 square feet of industrial space was sold or leased in the Metro Vancouver region, with prices reaching record highs. It is estimated that by 2020, marijuana business will occupy more than eight million square feet of commercial space in Canada. In Alberta, marijuana retailers have been competing for space months in advance of the country’s expected legalization, and are securing locations without conditions and without assurances that they will receive permits. Over the next few years, the Canadian cannabis industry has the potential to reach 22.6 billion Canadian dollars. Whether or not these high expectations for Canada’s marijuana industry will be realized, Canada will set the stage as a case study for other countries contemplating nationwide legalization.
If one thing is clear, despite the illegality under federal law, the cannabis hype is not slowing down any time soon. As more players begin to partake in this continental green rush, it becomes imperative for property owners, landlords, and tenants to effectively arm themselves in their real estate investments. In the final part of our series, we will discuss tips and tools for purchasing and leasing commercial, cannabis property.
Check out the authors’ other posts on the intersection of real estate and cannabis: