by Jodi Summers
Next year, California is going to get legal marijuana, and both industrial and retail real estate sectors stand to benefit from pot’s legalization. Now the big project is for users and investors to find properties in legally acceptable locations.
“Marijuana legalization is a boost to industrial absorption in the states that legalize it, observes Ten-X Real Estate’s senior quantitative strategist Chris Muoio. “Growing at scale requires a lot of space with a consistent climate, which is a need that is perfectly met by large warehouse space.”
Growers are most interested in warehouses smaller than 80,000 square feet, according to the Wall Street Journal. In Southern California, between 8,000 square feet and 20,000 square feet is the sweet spot size for indoor marijuana farms. This size range is ideal for growing marijuana as well as packaging and storing it. Beyond the plant itself, the edibles business uses industrial space for cooking, packaging and distribution. In the marijuana business, we even know about industrial space that is being used for cash storage, as this business does not currently have access to the banking system.
Recreational use of marijuana was legalized in Colorado in 2012. Mark Bowen, vice president of the Denver office of DCT Industrial Trust investors, notes that the marijuana industry has driven up the cost of warehouse space by 60% or more and increased lease renewal rates by 25%.
Since California passed Prop 64 in the 2016 election cycle, marijuana friendly industrial real estate has seen an increase in value. One property owner recently got an offer of $1 million for a legal-to-grow 2.5-acre parcel in Desert Hot Springs – a price of nearly 3x what they paid for the property in 2015. And, this is just the start. Recreational marijuana laws don’t even go into effect in 2018.
“If you have the right parcel with utilities in the right jurisdiction, your land will definitely appreciate as a result of Prop 64,” investors reveal.
Restrictions are making real estate prices skyrocket and finding any place to sell medical marijuana is hard, let alone one that is affordable. Properties for marijuana can go for more than double the market value.
It is estimated that California’s cannabis industry could grow to $6.5 billion by 2020, making California the largest market for legal marijuana in the world, by a long shot.
Expect legalization to also be a boost to the retail sector, which desperately needs destination-based product to get people coming back to the stores. Optimists would like to see marijuana shops proliferate like liquor stores. Pundits envision increased absorption in the retail sector, which will in turn lower vacancies and drive up rents. That’s only if the change the location laws so these shops can be closer to schools and parks.
The experts conclude that markets which are legalizing marijuana are providing their industrial and retail markets with an additional catalyst to drive absorption and fundamentals that should be fairly agnostic to economic cycles.
Before you get out your checkbook and start writing for joy, remember loans are hard to come by. One of the constraints still facing the marijuana industry is that while it is now legal at the state level, it’s still illegal at the federal level – and this has resulted in the financial industry being unwilling to loan for cannabis. This may change soon. After the last election cycle, more than after the states in the country have supported medicinal marijuana, so those rules may change soon. In the meantime, the marijuana business financing is still the wild, wild West. This has left the space struggling to find banking solutions and operating underground or highly in cash.