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The Budding lmpact of Marijuana on Real Estate
by Amanda Farrell November 30,20L7 lndustrv News 4
Multiple studies have confirmed the medicinal benefits of marijuana, but what about its impact on the
health of the housing market? Does medicaland recreational legalization lead to growth in home values
or is the pot industry just blowing smoke?
Over the past few years, voters in California, Massachusetts, Maine, and Nevada all legalized
recreational use while Florida, Arkansas, North Dakota, and Montana voted to legalize or expand
medical use in those states.
One thing is clear, pot entrepreneurs are contributing to real estate booms in commercial and
residential markets in states that have legalized the drug for medical and recreational use.
lmpact on commercial sales
Previously vacant warehouses and factories are now home to growers while long-abandoned strip malls
have become the storefront for pot shops. The pot industry has created a huge demand for commercial
operations. As a result, states like Colorado and Washington are seeing premium prices for building
leases and purchases within the proper zoning.
Buying real estate is an attractive asset to marijuana growers and retailers because it provides a safe
haven for their profits that many banks are still reluctant to manage due to federal regulations and give
them more freedom to create specialized spaces for their business. Landlords also notoriously price
gouge marijuana tenants, so buying makes good business sense over renting.
Successful owners of marijuana businesses quickly turn to real estate and become landlords themselves.
ln Colorado, Polk and Stone rents oroperties to mariiuana businesses with the aereement that rent will
increase onlv 3 percent a vear. ln an industry where rent can increase by 50 percent from year to year,
this business model is enticing to marijuana entrepreneurs.
lmpact on residential sales
Colorado's state law allows for counties to determine if they and how they want to legalize and regulate
the drug. Areas where it's legal attract more homebuyers, including marijuana users as well as
entrepreneurs and job seekers. As more Browers and retailers open up shop in these municipalities, the
demand for workers rise. The influx of new residents inevitably leads to more home sales and higher
rents. There are also plenty of people moving to pot-friendly states without intent to work for the
industry, but rather to enjoy the bud of its labor.
lmpact on home values
Realtor.com reports the four states with at least a year of experience with recreational marijuana sales
showed a marked ase in home prices - well above the tional median orice
The data from Colorado provides some of the best insights on what happens to the housing market after
recreational use is legalized because it has permitted its use the longest. Since the first shops started
operations on January Lst,2O!4, the median home sale price in the state has risen from 5248,000 in the
first half of 2074 to 5298,000 in the first half of 2016 according to the realtor.com analysis. ln
jurisdictions where the drug can be purchased, the median sales price of homes in the second quarter of
2015 were a hit 5305,200 while homes in areas where it is banned only went for 5261,2O0. Of course,
there are other industry sectors that have been experiencing rapid growth in Colorado, so it's difficult to
contribute the rise in home prices strictly to the rising business of pot, but it's an obvious leading
contributor.
Unfortunately, not every homeowner in states with legalized weed is getting a good deal. On the flip
side, Colorado neighborhoods harboring grow houses lose value. The pungent odor the plant emits
turns off home seekers.
Concern for criminal activity
One of the greatest concerns of detractors of legalization is the claim it will encourage more crime and
further reduce home values of those living near grower, manufacturers, and retailers. Looking to
Colorado again, in Denver, the crime has grown by 44% as reported to the National lncident Based
Reporting System since legalization. But police argue that the system potentially overcounts crimes and
prefer to cite the FBI's Uniform Crime Report which indicates only a 3.5% increase over the same time.
It's important to note, however, the city began tracking marijuana-related crimes as well, which make
up less than 1% of all offenses. Experts conclude that the rise in crime is tempered when tal<ing
population growth into account. and not directly tied to the sale or use of the drug.
Dealing with real estate transactions
From a real estate professional perspective, a lingering question is how to deal with money that comes
from an industry that is still federally prohibited under the Controlled Substance Act. There is a serious
lack of banking services for commercial operations in the medical and recreational marijuana business.
Although many title companies will help close on a cannabis deal, they will not facilitate the exchange of
funds. That's because banks refuse to work even indirectlv with mariiuana business owners. As a result,
title companies have formal policies against serving as escrow, especially when the land is designated
for pot-related use, but will issue limited title insurance policies on the land that won't cover federal
governmental actions such as civil and criminal forfeiture.
As more states pass legalization, this will provide opportunities for agile and creative title agents and
real estate attorneys to provide much needed professional guidance for marijuana business owners.
Florida's tightly rolled regulations
Florida, like Colorado, allows local governments to ban cannabis. Unfortunately, the state's new
marijuana law hasn't been implemented quite the same way as other states that have legalized the drug
for medicalor recreational use. Florida has some of the tishtest reeulations on the drue. and initially
banned the smoking of the drug. Recently lawmakers passed legislation to repealthe ban on smokine
medical cannabis.
Despite the reversal, some Florida physicians are concerned about administrating a medication via
inhaling products of combustion. Jorge Lopez, a doctor from Maitland observed, "No other medication
in the United States is delivered like that."
The process for patient approval can still be arduous, requiring a 30-day wait period and several
hundred dollars for an in-person visit and registration fees, and since many doctors may not approve
smoking the medication, the new rules aren't expected to be a boon for the pot industry.
Despite an overwhelming support of amendment 2, the state has been stingy in issuing business
licenses. This past June, two more businesses joined the meager 7 already approved for low-THC
treatment in 2014 when the Florida Legislature finalized the plans on how to carry out the new
constitutional amendment during a special session. As of April L7,20t9, the current count of businesses
operating with an approved license is 14 with eight more pending in a state with an estimated 500,000
patients.
Because of these tough restrictions, it's doubtful that Florida's housing and commercia! real estate
market will see the same upturn as other states and municipalities with more relaxed standards.
While the data is still fairly new and direct correlation may be difficult to establish in some markets, the
overall numbers do indicate a positive gain for the housing and commercial real estate market in
municipalities with legalization. Those areas with less strict rules seem to have a clear advantage over
other areas who do not. Only time will tell how the new legislation will impact hot housing markets like
Florida.
Are you a real estate agent, title agent, or attorney in one of the marijuana meccas of the United States?
What are your thoughts and predictions on how the industry will affect your area? Have you worked
with any pot entrepreneurs on a real estate transaction? Let us know in the comments below.
A budding blend: real estate and marijuana - News - Sarasota Herald-Tribu... Page 1 of 5
%&IIeraliltrlhure
A hudding hlend: real estate and mariiuana
ey c_hil"s"wi[!-q
Business and Real Estate Editor
Posted Oct 26, 2017 al2.42PM
Updated Oc|27,2017 al8:55 AM
Does legalized pot have a positive impact on home values?
Home ownership close to a business with a name like Herban Underground, High Rollers or
Dr Releaf could yield a bonus upon a resale. And neither Potco nor \WellGreens refer to a bulk
products warehouse or a pharmacy chain store. All these are real names of Colorado mariiuana
shops.
But serious headlines from a variety of sources state this mystiffing side effect of legalized
cannabis:
"\fil Legal Marijuana Give Home Prices a New High?" - Realtor.com.
"The Marijuana Business is Really the Real Estate Business" - FloridaMarijuana.net.
"A Real Estate Boom, Powered by Pot" - The New York Times
Before cannabis legalization spread across the land, this real estate phenomenon would have
been laughable. Indeed, one leading Sarasota-Manatee Realtor howled at the very thought
when asked for comment about the possibility of such a positive pot impact here.
The growing trend may not be on anyone's radar here - or statewide, the Florida Realtors
organization suspects - but could that change as Florida's fledgling medical mariiuana market
sprouts dispensaries?
To date, there's but one dispensary operational today in the Sarasota-Manatee area, a Trulieve
outlet on Tamiami Trail in Bradenton. Its grand opening last month attracted a standing-
room-only crowd.
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The pot landscape here appears poised for expansion, though. Sarasota-based medical
marijuana company AltMed and the Tallahassee-based Truelieve chain both filed applications
only days apart this month to open dispensaries in Sarasota County. AltMed seeks to open a
cannabis outlet on Fruitville Road by Honore, and Trulieve wants one atJacaranda Boulevard
and Center Road in Venice.
Trulieve, one of Florida's seven licensed medical marijuana merchants with numerous pot
shops in operation around the state and more in the works, secured Bradenton approvals
before the City Council adopted a moratorium in October.
Sarasota County allows retail outlets under a special exception regulation that mandates public
hearings. North Port and Venice are on the verge of final approval of dispensaries. Manatee
County adopted an ordinance that affirms language in state statute, that marijuana dispensaries
be allowed under the same zoning as pharmacies and be separated from schools by at least 500
feet. Sarasota and Longboat Key adopted moratoriums as did Bradenton, Palmetto, Holmes
Beach, Bradenton Beach and Anna Maria.
'W'hat's the impact?
The cannabis clout is on a roll in both the residential and commercial real estate markets in
other states. Several scholarly studies support pot's real estate impact. But that depends on
several factors.
Twenty-nine states have legalized some form of marijuana use, either medical, recreational or
both. In the November election, California, Massachusetts, Maine and Nevada joined Alaska,
Colorado, Oregon and'W'ashington with laws allowing the recreational use of cannabis.
Sunshine State voters approved medical pot in November via Amendment Z.The ballot
initiative included aJuly deadline for implementation.
Redtor.com reports the four states with at least a year of experience with recreational
marijuana sales showed a marked increase in home prices - well above the national median
price. Coincidentally, the price charts for those four states show almost identical upward
trends. As Realtor.com states, "Recreational marijuana is likely to have a big impact on home
buyers, owners and sellers."
Even'Washington, D.C., which only legalized medical marijuana like Florida, sports a similar
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upswing in home prices.
One of the academic studies, primarily from two University of Mississippi economics
professors, estimates that Colorado's legalization of recreational cannabis and local
governments' approval of retail outlets within their jurisdictions increased housing values by
an average of 6 percent. (Florida,like Colorado, allows local governments to ban cannabis.)
The sharp price rise "is likely due" to pot shops "inducing strong housing demand," the
researchers' report states.
The highly detailed study found recreational marijuana laws "obviously attract more migrants
- whether it be marijuana users, entrepreneurs or job-seekers - to relocate, which drives up
housing demand." And, as existing residents become more willing to remain in place, the
housing supply drops as demand rises, thus the increase in property values.
The rather lengthy equations the researchers devised to reach their conclusions would make
Einstein proud and speaks to their scientific approach. A natural logarithm, indicator variable,
vector, demographics, and fixed effects are all part of the multiple equations. Good luck
following the explanation of the interplay between all these factors.
A second study, from the University of \Wisconsin School of Business and economics
researchers from rwo additional universities, focused on property values in Denver and found
that homes near retail cannabis outlets - within just 0.1 miles - gained 8.4 percent more in
value than houses just steps further away, from 0.1 to 0.25 miles. That big increase amounted
to almost $27,000 for an average house.
A Realtor.com analysis published last year compared median home prices in Colorado from the
first six months after the debut of pot shops inJanuary 2014 with the first half of 2016. The
increase? From $248,000 to $298,000, a20.4 percent jr*p, far higher than the 15.2 percent
registered across the nation. The Rocky Mountain state's booming population accounts for
some of that.
Realtor.com qualifies the numbers: "There's no direct evidence tnng the legalization of the
drug to the population boom, but real estate agents say more of their clients are relocating to
the state because of it."
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Furthermore, "Home prices tend to be higher in the roughly 60 Colorado cities and towns
where cannabis is legal than the more than 200 where it's not." In hard numbers, the median
sales price in the second quarter of 2016 came in at S302,500 for pot jurisdictions versus
$267,200 in banned areas. The annual appreciation rate has been higher in cannabis locales,
too,12 percent versus 9 percent since 2014.
On the flip side, Colorado neighborhoods harboring grow houses lose value. The pungent
odor the plant emits turns off home seekers.
The Realtor.com data team did not analyze \Washington state because some cities allowed sales
but later issued moratoriums on sales licenses. Colorado offered the most consistent data.
The commercial side
On the commercial side, warehouses, factories and self-storage businesses in states with
legalized marijuana have been converted to pot growing and processing enterprises, the New
York Times found. And suburban strip malls have become homes to pot shops.
The industrial real estate market is booming as marijuana operations continue to sprout uP.
The upshot translates into premium prices for building leases and purchases. The smart money
is on property ownership since landlords have been known to gouge marijuana tenants. One
sign of all this: There's a Denver-based real estate and business brokerage company called
Avalon Realty Advisors that specializes in cannabis counsel.
Denver marijuana growers inhabited 4.2 million square feet of metro industrial space by the
end of 2016, an increase of 14 percent over the previous 18-month mark of 3.7 million square
feet, CBRE Research found. Roughly two-thirds of the space comes from warehouses. The
average sales price of cannabis-occupied industrial properties jumped 17.6 percent from 2014
to the end of 2016, CBRE reported. Plus, in 2016 sale prices of those properties achieved a 20
percent average premium over all industrial properties.
Denver's City Council, though, capped the number of dispensaries and grow houses in April
2016 since the Mile High municipaliry became overrun with pot operations. Marijuana
dispensaries far outnumber Starbucks outlets in the state - by five times. The number of
individual marijuana dispensaries within Denver's city limits stood at235 by the end of 2016.
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As the Colorado market cools from saturation, states with recent marijuanalegalization are
now entering the quickly changing landscape in commercial real estate, particularly California
and Massachusetts. The states with newfound cannabis laws are looking to Denver's industrial
market to gauge the potential impact on their own market fundamentals, CBRE wrote in a
}une 2017 analysis.
Arcview Market Research, a division of the Oakland-based marijuana company Arcview
Group, forecasts California's legal marijuana industry will be worth $5.8 billiotby 2021.
Nationally, Archview predicts revenues from the industry will soar from $6.7 billion in 2016 to
more than $21 billion by 2021.
The pot industry could go up in smoke should U.S. Attorney GeneralJeff Sessions implement
new federal policies to crack down on legalized recreational cannabis. The impact on medical
marijuana is not clear.
The question of whether Florida's real estate market could see fresh dollar signs is pretty ifSr,
especially on the commercial side. Currently, there are strict limits on cultivation operations.
To get a grow license, an applicant's nursery must be at least 30 years old and should also
possess at least 400,000 plants in cultivation. Plus, applicants should be able to prove they have
a financially viable business plan backed by $2 million for start-up costs and show licensing
officials they have the ability to finance their operation for at least fwo years without going
bankrupt.
Unless the rules change, it appears only dispensary locations could influence real estate in the
Sunshine State - on the residential side. Limitations on potential retail medical marijuana
sites, and bans by cities, look likely to snuff out the potential realized in other states.
Chris lYille is the Herald-Tribune's real estate editor. He can be reached at
chr i s.w ill e@ he r al dtr ibune.c o m and 36 1 - 480 5.
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