With the legalization and decriminalization of cannabis sweeping the country and world at large, the green weed is causing many ripples in real estate. The reason is that the realty industry is directly related to land, which is a necessity for the growth of the plant. But how is cannabis, once criminalized and demonized by law, disrupting realty in the US?
From Colorado to California, cannabis is making lasting ripples in this critical sector. Since legalization in Colorado, there has been a strong shift in real estate development that used to be dominated by other industries. For example, dispensaries in Colorado now outnumber Starbucks, 7-Eleven and McDonald’s outlets combined. They even outnumber alcohol stores by five percent. In this post I will explain how cannabis is impacting real estate in this country. Some of the areas of impact I will share with you are:
- The green exodus it is having in states that have legalized the plant
- The shift in property prices
- The rush to own property by cannabis growers
- Its impact on property vacancy
- Its impact on building materials
- What buyers and sellers should know before dealing with cannabis-related property
I invite you to continue reading as I discuss the many interesting ways cannabis is impacting America’s real estate.
The “Green Exodus”
We start our journey on a motion note—the “green exodus.” We will examine how the legalization of cannabis is impacting real estate in Colorado. The reason is that this state is a one of the pioneering states from which California and other others can learn. Moreover, it is home to America’s “cannabis capital,” Denver. Notably, its legal framework allows counties to determine if and how they want to legalize and regulate cannabis. Consequently, areas that have legalized the plant have attracted more home buyers and workers. These include cannabis investors and job seekers in the industry. The explanation here is simple: as more retailers and growers pitch tent in the state (and others), the need for workers rises, leading to a need for more housing.
Also, real estate investors who want to take advantage of higher property prices are flocking there. This means that they will need workers to run their new offices. It is not surprising to note that after legalizing cannabis, Colorado has joined the club of top ten states with the highest annual growth. For instance, the US Census Bureau tells us that last year alone Colorado received 75,000 new inhabitants.
Property Price Ripples
Another way in which the cannabis bonfire is impacting America’s real estate industry is the rise in property values. According to the National Real Estate Investor, states that have legalized pot for medical and recreational use have experienced the highest property price increases. Some of the states that have experienced this price boom are Maine, Massachusetts, Nevada, California, and Colorado.
For instance, two cities in Orange County, California, have had an increase in property values in the last one year. In Denver, Colorado, the average asking lease price for warehouses increased by over 50 percent between 2010 and 2015. In the same state, structures that were formerly zoned as light industry, and have been lying idle for years are now highly desirable because of the green revolution. They are selling so fast that real estate companies with enough cash are now buying properties, getting licenses, and selling the entire packages to smaller businesses.
In another example, two siblings say they bought a 40,000-square foot warehouse in Denver in 2014 for $2.5 million and sold it for $6 million a few months ago. The owner of the warehouse spent a mere $1 million to construct it. Reaching the West Coast, California is another example where this price ripple has impacted real estate. For instance, some of the greenhouses that used to grow roses and tulips in Monterey County are now growing pot. An agent with one of the country’s leading realty companies in the same county said that they have closed over 20 key transactions amounting to over $100 million. He also adds, “Last year, you’d have paid about $2.5 million for a 10-acre parcel with greenhouses…today, you’d pay $5 million.”
The Rush to Own Property
In the previous section, we discussed the rise in warehouse and property prices due to the legalization of pot in some states. This means that the steep rise in prices could hinder some young investors. However, some growers who are into the industry for the long term are taking it the other way. For instance, they are rushing to buy and own their properties because they want to enjoy long-term security without leasing price fluctuations.
Also, they are rushing to own property as a form of banking in an industry that is yet to attract the favor of conventional banks. The reason is that the Federal government is yet to legalize cannabis the way countries like Uruguay have done. For instance, bankers require more compliance work when dealing with cannabis corporate clients. This, in turn, makes account maintenance expensive with some companies spending $3,000 monthly. Since banking cannabis profits is costly, these companies are resorting to real estate as a safe alternative way of storing their hard earned gains.
A New Raw Material for Eco-friendly Building
Another ripple the cannabis revolution is having on real estate is construction materials. For those developing properties, this impact comes in handy when seeking eco-friendly construction alternatives. For instance, the New York Times reports on a new cannabis-based material called “hempcrete,” coined from the words hemp and concrete. According to the paper, this could be the next big thing in the construction industry.
Although this material has been around since the 1980s, it was obscured due to the legal ban, stigma, and demonization the plant had. But after its legalization across many states, it is coming back into vogue. The hempcrete is constructed from lime, water, and cannabis. The building material contains less than 0.3 percent of THC. Moreover, it is already a darling in other countries like our northern neighbor, Canada. For instance, a producer of the technology in Canada praises it for its energy-saving ability and boasts about its negative carbon footprint as it does not emit gases like other artificial construction materials.
Currently, American construction companies that value hempcrete need to import it because of the current domestic restrictions on its productions. However, the National Real Estate Investors report says that its growth prospects are promising, as it hails its use and contribution to commercial and residential real estate in cities like Denver, Colorado.
Impact on Property Vacancy: The Colorado Case
Another area where legalized cannabis is impacting real estate is property vacancy. With Colorado as our model, the industry has experienced ripples in this area due to the legalization of cannabis. For example, between 2009 and 2014, 36 percent of all new industrial tenants were in the cannabis business. Also, about four million square feet of industrial space went to the growth of the plant in 2015 alone, representing around 3 percent of the city’s entire warehouse space. Moreover, vacant houses in the city dropped from 7.5 percent in 2010 to a mere 3.7 percent in 2015.
What Buyers and Sellers Should Know Before Dealing With Cannabis-related Property
So, what does this present to real estate buyers and sellers? What should you know before buying or selling properties with cannabis? In this closing section, I will share with you a few nuggets you should consider before taking the plunge.
- Selling Property: If you want to sell your property with cannabis on it, you should disclose it to your potential buyers. Otherwise, you could be hit with a lawsuit. Also, you have to disclose it because if the buyer wants to get a bank loan, some lenders could shy off because of the Federal Government’s legal position on the plant.
- Buying Property: Even though you might sue a seller for not disclosing that they were growing cannabis on their property, no law compels them to do so. So, if you want to buy property and are not comfortable with the cannabis on it, it is appropriate to ask the seller. Alternatively, you can check for cannabis signs such as wood rot from irrigation, damaged or modified vents, mold spores on walls and attics, and contamination resulting from excess fertilizer use.
- Federal Illegality: Remember, cannabis is still illegal according to the Federal government. This means that houses that were constructed or insured by the Department of Housing and Urban Development still view the crop as such. Therefore, growing, possessing, or consuming of cannabis on such properties is deemed illegal.
- Your Local Homeowner’s Association (HOA): Lastly, you should consider this association in your local state. The reason is that even though your state could have legalized the plant, your local county could have casual laws that prohibit the plant’s growth in residential areas.
Since its legalization and decriminalization in many states, the cannabis has impacted American real estate in many positive and commendable ways. Although there are still legal restrictions from the Federal Government and some individual states, cannabis is quickly changing many areas of the real estate sector. I hope that what I have shared in this post will open your eyes to what the future holds.
Pete Asmus is not one to let life idly pass him by. GreenZone 360’s CEO gets things done. From motivational speaking and meeting with new business partners to building ninja courses for his kids and advocating for public education on Alopecia. Whether it’s business or family, you’ll find Pete going to MAKE SOMETHING HAPPEN.