Marijuana vs Real Estate: Who's Winning, Who's Losing?

As of February 2017, twenty-six states have legalized cannabis in either a Medical or full Recreational capacity. This push for greater and greater legalization will likely not abate and, as younger generations continue to make their way to the voting booths, national cannabis legalization seems to be inevitable. Cannabis’ ascent as a new and profitable business will impact a variety of subsidiary businesses and have particularly great and noteworthy implications for the real estate industry.

What is unique to Real Estate is that its value is intimately connected to the perceived worth of the neighborhood and community on which it sits.  Indeed, all of us are familiar with the famous adage, “Location, Location, Location.” How does marijuana’s various statewide legalization programs affect the real estate industry? The answer is seemingly, quite a bit.

Private individuals and businesses are approaching real estate vis-à-vis cannabis in two distinct but ultimately interconnected ways. Individuals, and certainly younger folks, have been steadily relocating to States like Colorado and Washington over the last couple of years in awesome numbers. Without subjecting the following hypothesis to the rigors of a full scientific analysis, the reason for this influx in emigration is quite simple: cannabis legalization. Millennials largely favor cannabis legalization and want to live in areas that support their legal right to consume it.  

The city of Denver alone houses regulated marijuana operations totaling millions of square feet, which have to date generated hundreds of millions of dollars in revenue. Clearly, this is an exciting and profitable industry for the Denver community specifically and the cannabis market at large. As an unfortunate corollary, the demand to live in cannabis friendly states like Colorado is having adverse effects on members of lower class communities which are being driven out of their neighborhoods by the price hikes. This is especially true for otherwise long-term, but financially less-capable, Denver residents. The City of Denver continues to seek to address this very real problem.

Real Estate owners, conversely, are struggling to reconcile their excitement with the increased value of their properties with the inevitable risks and challenges associated with becoming involved in the Marijuana industry. The central challenge to landlords and property managers is cannabis’ Federal illegality under the Controlled Substance Act. It is conceivable, albeit highly unlikely, that Federal agents may seize and liquidate properties that are being used to sell federally illegal substances.  This is especially true with a Jeff Sessions led Justice Department which will likely not be nearly as laissez-faire in regards to federal enforcement as the Obama administration.   

Landlords must also contend with a series of logistical problems that surround the accommodation of marijuana grow houses and production facilities in properties that were not originally built to handle these specific operations.  Indeed, developing the proper material infrastructure to deal with the unique resources (treated water, draining solutions, sewer piping etc.) required to grow the plant and associated products will undoubtedly continue to be a challenge aspiring cannabis-landlords will need to traverse.  Ultimately, like all industries, the new pressures and opportunities surrounding the marijuana industry will prove to be highly lucrative for some while deeply debilitating for others.