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Real Estate Prices Get Cannabis Boost

Pot Legalization Drives Market Contact High


Licensed cannabis dispensaries are so en vogue around much of the nation it’s like having a coffee shop in the neighborhood that might be selling a variety of gift items, yoga mats and Obama Kush, a cannabis indica strain that “channels the president’s famous message of ‘change’ as it invigorates and inspires.” With U.S. retail marijuana sales projected to reach $37 billion by 2024, one thing is for sure: It’s an emerging industry with millions to be made. With New Mexico recreational cannabis sales targeted to begin on or about April 1, 2022, the impact could be positive for residential, commercial and industrial real estate.

If you are wondering what impact legalization of cannabis has on the real estate market demand and value of your home or commercial property, it depends on where you live and where you get the data for your evaluation. Geography, a town's population, political climate and its location near a blocked cannabis town all factor in when reaping a payout in real estate from legalized marijuana. Once the neighboring states also legalize recreational marijuana, the positive effects may take a sliding plunge, decreasing the real estate demand—or maybe not.

When a state legalizes marijuana for recreational use, it attracts more homebuyers, including marijuana consumers, entrepreneurs and job seekers. With more marijuana stores opening up every day, labor demand is also on the rise, and so is the need for homes. Increased property sales and higher rents could be the most substantial payoff.

There are a lot of studies out there on Mary Jane’s impact. The research shows that, although homes of all price levels realized increases in their values, marijuana legalization's impact on more-expensive homes' values is different from the less-expensive ones. Marijuana legalization is often hyped as the new mainstay of an otherwise struggling economy—especially in rural communities. It has even been shown to significantly bolster municipal tax bases, funding developments that were otherwise ignored.

In a University of Mississippi study, Assistant Professor of Economics Cheng Cheng used a variety of data sources—including tax assessors, county records, the U.S. Census Bureau and the Multiple Listing Service—to arrive at some important conclusions. Property values get a contact high from retail marijuana because home buyers, entrepreneurs and job seekers flood a newly legal marketplace creating “unprecedented business and employment opportunities.” Cheng also concluded that neighborhood amenities can be upgraded with an injection of new tax revenue, likely enticing homeowners to stay put while driving prices upward.

As the marijuana business booms, there is a higher demand for industrial and commercial real estate. In Colorado, as marijuana sales rose, warehouse vacancy rates fell from  7.6 percent to 3.1 percent. And warehouses that normally sell for $40 per square foot now receive $80 from marijuana businesses. There are actually warehouse shortages due to such a high demand from the industry.

According to Francesca Ortegren, a data scientist with Clever Real Estate, as soon as marijuana is legalized and before dispensaries open, many states have seen home values rise. Clever’s research, which used Zillow’s historical home price index, saw values increased by $22,888 between 2014 and 2019 in cities with pot shops compared with communities where marijuana is illegal.

A report from the National Association of Realtors indicates that, "States where medical and recreational marijuana have been legalized for more than three years have seen more increases in demand for commercial properties." Specifically, 42 percent saw an increase in demand for warehouses, while 27 percent saw an increase for storefronts, and 21 percent saw an increase for land. In addition, 29 percent of commercial members in states that legalized recreational marijuana during the past four years reported growth in property purchasing over leasing in the last year. The NAR report found that new dispensaries' impact on housing prices is rather similar to new grocery stores' impact.

In Colorado the decision to legalize recreational cannabis has been blamed for several changes to Denver’s rapidly evolving landscape. Pot has been accused of increasing homelessness and the overall rise in population, as well as the hike in housing costs. In 2016 Mark Bowen, vice president of the Denver office of DCT Industrial Trust, a real estate investment trust specializing in industrial properties, said the marijuana industry had driven up the cost of warehouse space by 60 percent or more and increased lease renewal rates by 25 percent over the previous year.

Researchers from the University of Wisconsin Madison found that Denver home prices have risen in the immediate vicinity of a recreational marijuana dispensary at a fast pace once retail sales are legalized. Researcher Moussa Diop and her team determined by the first year of retail pot sales that single-family homes within 0.1 miles of a dispensary saw an 8.4 percent increase in price after comparing Denver home prices from 2013 with home prices in 2014. Colorado municipalities that had legalized retail sales saw a 6 percent increase in home prices in the same time frame.

“The presence of retail marijuana establishments clearly had a short-term positive impact on nearby properties in Denver,” says Diop, an assistant professor of real estate and urban land economics at UW Madison. “This suggests that, in addition to the sales and business taxes generated from the retail marijuana industry, municipalities may experience an increase in property taxes. It’s an important piece of the puzzle as more and more voters and policy-makers look for evidence about the effects of legalizing recreational marijuana."

The future is budding green in New Mexico. There’s vast potential for legalization to generate jobs and economic activity. Cannabis businesses have proven to be strong tenants. Maybe the effects of marijuana legalization aren't as bad as some might have initially believed. Whether real estate prices will continue to rise or plateau because of marijuana legalization is hard to predict. But the consensus seems to be that it's helping American retail real estate—and that is nothing short of a miracle nowadays.


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