Cannabis and Real Estate – The All-Inclusive Guide
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Originally Posted On: https://www.420property.com/cannabis-and-real-estate-the-all-inclusive-guide/
How Cannabis Is Changing Real Estate
With each new state that passes medicinal or recreational cannabis laws, there’s a whole new segment of the American population that can get in on the opportunities afforded. For those with an interest in real estate, it also means that properties that couldn’t grow cannabis legally before the change now can, and that’s helping to drive something of a real estate boom across the country where millionaires are becoming minted overnight.
In fact, there are very real changes that are occurring on the state level in many legal states, and it’s doing more than disrupting the real estate that’s available. In this cannabis real estate guide we’ve talked about the jump in both urban and suburban real estate values, as well as the regulations that need to be met by enterprising growers and distributors, but there are also significant disruptions to both residential and commercial real estate that are quickly becoming evident.
Residential Real Estate
While cannabis isn’t supposed to be grown inside residences in states where recreational cannabis is legal, there are still observable effects on local real estate markets. According to the National Association of Realtors, they’ve noticed that a third of respondents in surveys where cannabis has been legal the longest say that local real estate inventories are tighter in those areas. A quarter of respondents in states where marijuana laws are newest also report tightening local inventory.
That said, cannabis laws have also seemed to have depressed the property values of residences in the immediate vicinity of dispensaries. Unfortunately, it’s also the case that homeowner associations tend to create more restrictive rules and guidelines concerning smoking in common areas and exposed areas in states with recreational marijuana laws.
Commercial Real Estate
But the real boom to real estate is in the commercial space. In the same National Association of Realtors survey, more than a third of respondents reported noticing an increased demand for warehouses in states where medical and recreational marijuana use is legal. About a quarter of respondents also noticed an increase in the demand of storefronts and land in those same states.
For those states with newer marijuana laws on the books — limited to the past four years — demand has spiked the most for commercial properties that are able to serve the burgeoning cannabis market, and the COVID-19 pandemic seems to have accelerated, not diminished, this demand.
But just like residential real estate, there seems to be an associated decrease in demand for commercial in the immediate vicinity near dispensaries, which has led about 10 percent of respondents seeing decreasing property values.
There’s Still Plenty of Opportunity Out There
While most people aren’t likely buying real estate for the purpose of growing marijuana, it doesn’t mean you can’t make serious money on cannabis real estate. In fact, in 2018 there was a property owner in Santa Barbara, California that turned their $360,000 investment into a $1 million payout just a year after purchasing a small, 2.5 acre property. That’s a $640,000 windfall for owning a property for a year.
Sure, you probably won’t get that lucky by purchasing a cannabis property, but it does give you an idea as to the possibilities of cannabis real estate.
If you’re ready to explore your opportunities after reading our cannabis real estate guide, you can start by browsing our featured listings, including these three great investment opportunities. Who knows? Maybe everyone will be talking about you and your great cannabis real estate play in a couple years!
The legal cannabis industry started attracting big money during the “second wave of decriminalization.” During the early 2000s, several states decriminalized cannabis possessions for personal use. The plant hadn’t become legal, but savvy entrepreneurs could see the tide changing.
By 2012, two states (Colorado and Washington) legalized recreational cannabis. By 2020, 11 states and Washington, DC, had made it legal to sell and possess medical and recreational cannabis. Businesses selling cannabis have to follow strict guidelines, but everyone from consumers to state governments benefits from looser laws governing marijuana sales.
Many states are still pushing to pass laws that will allow the sale of recreational marijuana. For many people, nationwide legalization looks like an inevitability. It may have to happen state by state, but eventually, all adults 21 and over will have access to legal, safe cannabis for medicinal and personal use.
The room for growth has fueled much of the interest in cannabis as an industry. Smart investors know that they will make the most money by entering an emerging industry early and riding the growth to profits. The fact that plenty of states still don’t allow cannabis sales could actually encourage more people to invest in the industry. Right now, it looks like there’s unlimited room for growth. Who wouldn’t want a piece of that?
COVID quarantines make cannabis real estate even more attractive as states deem cannabis an essential business. Cannabis has become so critical to the health of individuals and economies that states like California, Colorado, and Illinois allowed delivery and curbside sales.
Legal Cannabis Has Had a Remarkable Impact on Real Estate
It’s not surprising that so many companies have entered the legal cannabis industry. Growth, however, has made some unexpected changes. Certain types of real estate, for example, have become significantly more valuable as places to grow crops and distribute products through storefronts.
The Jump in Urban and Suburban Real Estate Values
Typically, old, cinderblock warehouses don’t attract much attention from potential buyers. The building might work as a storage facility, but not much else. Until that is, a state legalizes cannabis. Suddenly, that old warehouse on the edge of town looks quite appealing. With a little retrofitting, a burgeoning cannabis company can turn it into a grow operation that produces hundreds of pounds of cannabis.
In 2017, the New York Times described how marijuana was affecting real estate prices around the country. The article described old gardening centers and warehouses recently turned into high-security grow operations. Some of the money to fund these new operations came from individual entrepreneurs. A lot of the cash came from Wall Street, though. When real estate companies start raking in money, traders on the New York Stock Exchange take notice.
As more property owners realized that they could turn their urban and suburban buildings into indoor farms, they started charging higher prices for rent. In Denver, the price for warehouse space grew by more than 50% over 5 years. Amazingly, Denver had more cannabis stores that Starbucks coffee shops.
While some municipalities in states with legal cannabis have rejected licenses for stores to operate, most neighborhoods welcome dispensaries that keep a low profile and follow the law. After all, two-thirds of Americans support marijuana legalization. To a lot of people, a new dispensary doesn’t seem that much different than a new liquor store. It’s just another opportunity for the community to thrive from the success of local businesses.
Since property owners realize that they can charge cannabis companies higher prices, dispensaries have to charge slightly more for their products. The prices tend to come down a bit over time, though.
When an area first introduces legal cannabis to consumers, businesses get rushed by people curious to learn about their options. It doesn’t take long for the novelty to wear off. Once that happens, growers and sellers can make accurate decisions about how much product they need. Even when prices remain higher than black market cannabis, many consumers are willing to spend extra money to know that they’re getting reliable products from local sources.
The Rural Boom for Cannabis Real Estate
Growing cannabis indoors has several advantages. Cultivators can grow more crops because they have control over factors like moisture, temperature, lighting, and fertilizers. A rainy or dry season won’t stop them from producing a full crop of profitable cannabis.
Still, sellers can charge a premium for cannabis grown outdoors. Some consumers say that they enjoy the smell and flavor of outdoor cannabis more than cannabis grown inside carefully-controlled warehouses.
Plus, farmers around the country are looking for cash crops. Kentucky makes an excellent example. The state’s farmers once relied on tobacco as a top earner. As the number of smokers falls, though, tobacco has lost much of its appeal as a crop. Mitch McConnell played a key role in passing legislation that legalized hemp production. Part of his motivation was to provide a new cash crop for agricultural areas of his state.
Kentucky farmers still cannot grow marijuana, but other states’ farmers have benefited. As a result, owning farmland in places like Oregon and California has become a way to generate significant income.
Cannabis Real Estate Must Meet Strict Regulations
Looser laws mean that more companies can cultivate and sell cannabis products to adults 21 years and older, but businesses still have to follow strict regulations.
Buying or renting cannabis real estate quickly becomes confusing for new entrepreneurs because the laws vary so much from location to location. Even within a state, each city can establish unique rules that influence tax rates, advertising options, security requirements, and licensing.
A look at three cities in Southern California shows how much rules can vary within just 100 miles. Keep in mind that the state of California charges a 15% tax for cannabis cultivation and consumer sales (meaning that farmers selling to dispensaries and consumers buying from dispensaries have to pay). The taxes listed for each city are in addition to the state tax.
Desert Hot Springs, CA
Desert Hot Springs considers cannabis a vital part of its economy. The city, which is about 1.5 hours outside of Los Angeles, has plenty of room for cannabis cultivation.
Desert Hot Springs charges 10% for all cannabis sales. It gets more complicated for cultivators, though.
Farmers pay $22.50 twice a year per square foot of cultivation up to 3,000 square feet. Cultivation over the 3,000 square feet costs $10.20 per square foot, again twice per year. A -farmer cultivating 3,000 square feet would pay the city $153,000 over the year.
All cultivators and dispensaries in Desert Hot Springs must get licensed by the State of California. Additionally all cultivation facilities must be located in the city’s Light Industrial Zoning District. Dispensaries can only operate in Commercial Zoning Districts, which essentially means that few cannabis storefronts exist close to residential neighborhoods.
Los Angeles, CA
Los Angeles has a slightly less confusing tax system. According to the Los Angeles Office of Finance:
- Medical cannabis sales carry a 5% tax
- Recreational cannabis has a 10% tax rate
- Cannabis cultivators pay a 20% rate
Cannabis dispensaries in LA also have to follow regulations to maintain their licenses. For instance, medical and recreational stores must:
- Pay a $5,000 bond to the State of California
- Employ at least one security guard during business hours.
- Only operate in jurisdictions that give them permission.
- Avoid advertising within 1,000 feet of a school, daycare, playground, or youth center.
It’s important to remember that there’s a difference between Los Angeles County and Los Angeles. Unincorporated areas of Los Angeles County can establish their own rules. Anyone who wants to purchase, rent, or sell cannabis real estate in unincorporated areas should reach out to the local government for guidance.
Long Beach, CA
Long Beach has a straightforward taxing system that charges 10.25% on top of the state tax. That makes purchasing cannabis rather easy and affordable.
Entrepreneurs need to consider other factors when buying, selling, or renting real estate for cannabis use. For instance, Long Beach forbids outdoor cannabis cultivation. No company can legally grow marijuana unless it has an indoor facility that can support the plants.
- No medical cannabis retail store can have a location within 1,000 feet of an existing cannabis dispensary.
- Companies must have independent laboratories test their cannabis for pesticides and contaminants.
- Dispensaries cannot operate within 1,000 feet of a school, daycare center, playground, or youth center.
Long Beach does have a Cannabis Social Equity Program that helps budding entrepreneurs access the funds they need to start businesses.
Getting Information About Cannabis Property Listings
Obviously, entrepreneurs have to consider a lot of factors when purchasing cannabis real estate. The long list of rules can make it challenging for people. It certainly doesn’t help that each state and city can set its own laws. Even small changes from city to city can affect the success of a cannabis farm or dispensary.
Currently, federal banking laws add a thick layer of complexity and uncertainty to investors that want to support the cannabis industry. Banks worry about extending lines of credit to cannabis businesses. Property owners may also worry about leasing or selling real estate to businesses in the cannabis industry. If legalized, those uncertainties would largely evaporate and the owners of cannabis real estate would see a huge spike in their property values.
At least six states (Arizona, Arkansas, Florida, Missouri, New Jersey, and South Dakota) are trying to expand cannabis legalization during 2020. Some of those states probably won’t succeed in 2020. By 2024, though, two-fifths of the U.S. will likely have laws that allow the sale of recreational marijuana. That would increase the number of states with recreational cannabis from 11 to 20 within a few years. It’s practically impossible to overestimate the opportunity that these legal changes will make within in the real estate and cannabis industries.
The good news is that no one has to go into the cannabis industry without help from experienced professionals.
420property.com is the best place for cannabis real estate. You can use the website to research cannabis farmland for sale, cannabis businesses for sale, and properties that you can use to cultivate cannabis. In this case, the word “cannabis” applies to CBD hemp and THC marijuana. The state that you want to operate may have laws that make hemp more feasible than marijuana. Regardless, 420property.com can help you find the right real estate for your project.
If you already own cannabis real estate, you can list the property on 420property.com. It’s the right place to find serious investors who want to make money using your real estate to grow or sell cannabis.
You can also use 420property.com to:
- Connect with appraisers, business consultants, real estate agents, and lawyers.
- Find investment opportunities in the cannabis industry.
- Get financing to fund commercial real estate, equipment, and capital.
- Compare your insurance options to make sure you have policies for crop failure, workers’ compensation, general liability, product liability, product recalls, and equipment failure.
- Advertise your cannabis real estate listings to find an option within your price range.
The cannabis industry stands to grow quickly over the next decade. Investors that purchase real estate now stand to earn the most money. Whether you want to buy cannabis real estate that’s right for your business plan or you need to sell a piece of land to someone willing to pay its true value, 420property.com has the features to put you on the right path to success.