Real Estate and Cannabis

What will California’s introduction of legal pot mean for commercial real estate? Ms. Real Estate takes a look at the issue.

SAN FRANCISCO—Wouldn’t it be convenient if someone had clear, intelligent answers to most of your CRE-related questions? Problem solved. Nina J. Gruen, a.k.a. Ms. Real Estate, a.k.a. the principal sociologist overseeing market research and analysis at Gruen Gruen + Associates, is here to answer readers’ questions.

Dear Ms. Real Estate:

I would like your opinion as to what extent the California real estate market will be affected by the legalization of marijuana.

—Cautiously Can-Do on Cannabis.

Dear Cautiously Can-Do,

Good question. The answer needs to be broken down into the likely short run and long run impacts. In the short run, those states legalizing cannabis will experience significant increases in their tax base, as well as economic growth, which includes the real estate sector. California can anticipate the need for more agricultural acreage, as well as warehousing space to grow different products, since marijuana will no longer need to be shipped illegally from Mexico and other countries. There will be a demand for retail stores, including bakeries specializing in marijuana edibles. Other employment sectors for which there will be an increased demand include testing labs, cash management firms, as well as marijuana tourism. The latter has been a significant factor in the Colorado market. A Colorado forecast model predicts the visitor market will account for annual sales of 55 metric tons by 2020. There will also be a demand for government workers who will need to test and inspect the product, as well as police, fire department and medical personnel who will be involved when a participant becomes ill from overindulging. However, there will be an ongoing shift from both the illegal and medical cannabis trade to recreational trade, from both a growth and retail store perspective. This will result in some medical marijuana dispensaries converting to adult stores, clubs and bakeries. Others can be expected to go out of business.

Cannabis is likely to go the way of alcohol at the end of Prohibition. Currently, about 20 percent of US citizens have or will have (they live in states that have legalized marijuana but have not finalized the process) ready access to cannabis products; most are located in high density West and East Coast states. But it’s quite likely that within the next two decades, cannabis will be legal throughout the country. When it is, demand can be expected to decrease significantly in those states that were the first to offer legalized cannabis. Marijuana tourism will no longer be relevant per se, but will be more like today’s alcohol purchases that are made by tourists — typically not a primary motivation for a visit except for wine tours in places like Napa Valley.

We are also relatively ignorant at this point in time on the potential downsides, i.e. automobile accidents due to absorbing too much product or the loss in worker productivity. Time will tell!

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About robertjrussellcompanies

International Real Estate Agent * Insurance Broker * Radio Talk Show Host * Public Speaker * find out about me - visit http://www.robertjrussellcompanies.com
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