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Blazing Real Estate Demand Ignited by Cannabis

Blazing Real Estate Demand Ignited by Cannabis

Unmarked warehouses are popping up across the country, and many individuals are unaware of what they contain. In the past, these structures may have been home to a granite cutter, a screen printer, machine shop, or an industrial business of another type. However, today, they’re now home to many marijuana operations across the county.

The legalization of marijuana has upset many citizens, as it defies societal norms in the eyes of numerous people. On the other hand, the cannabis industry has become a source of tax revenue that has become extremely lucrative in recent years. But the cannabis industry has gone much further than this–it has significantly altered many real estate markets nationwide.

More than half of the states have now legalized the use of marijuana (medical or recreational), and this number only continues to grow. As a result, a growing number of structures are being repurposed specifically for the cultivation, processing, and sale of this substance. This includes self-storage facilities, factories, warehouses and strip malls in the suburbs.

Landlords are cashing-in as a result of this boom. The industry comes with some risks and landlords and property managers find they’re able to charge a premium for businesses wanting to partake in the cannabis and hemp industry.

What makes this real estate trend so unique is the fact that it is taking place in numerous parts of the country. The marijuana industry is changing the face of the market in diverse parts of the nation, transforming blighted areas into thriving neighborhoods and sending real estate property values skyrocketing. For certain Denver neighborhoods, the warehouse space average asking lease price has increased by greater than 50 percent in a five-year period, and the city is now home to more retail pot stores than Starbucks in a stand-alone building. The ratio is actually five-to-one.

Investors are taking note of this boom in the real estate market as well. Innovative Industrial Properties, Inc. (NYSE:IIPR), a Real Estate Investment Trust (REIT) was set up for the purpose of acquiring and leasing warehouse space to marijuana cultivators and retailers.

One reason for the high demand for real estate devoted to the growth and sale of marijuana is the popularity of this substance—another is the lucrative retunes being made in the industry. In 2016, medical cannabis sales in the United States reached $6.7 billion dollars. ArcView Market Research predicts this figure will top $20 billion by 2021, thus as cannabis sales increase the need for facilities to cultivate and dispense cannabis will follow.

Some experts wonder if a new real estate bubble could be forming. Numerous landlords are converting old warehouses to structures suitable for the cultivation of cannabis at a rapid rate. The strong demand for cannabis properties has created opportunities for startups like 420 Property, which is a Zillow (NASDAQ:Z) like real estate marketplace specifically for cannabis properties, businesses, and professionals.

The experts, however, wonder if medical marijuana cultivators won’t turn to greenhouses to grow their crops, as this is a less expensive way to do so. Furthermore, as more states allow for the sale of cannabis, federal regulations may be loosened with regards to the transportation of this substance across state lines. Another concern is the federal government may find a way to impose regulations on this industry, and this could have a major impact on the industry and marijuana cultivators. However, businesses currently in the industry don’t appear to be worried about what could happen in the future. They are simply taking advantage of the boost in business and filling buildings that once sat empty.

Although Denver is a hot spot for those involved in the cultivation and sale of cannabis, this isn’t the only part of the country benefiting from these products. Investment firms are offering properties in California, Nevada, New York, Oregon, and many other areas.  420 Property has real estate business listings available in all 29 states that allow marijuana.

Before a property is converted, however, risks must be assessed. There is a great deal of capital needed for the tenant improvements needed to convert these buildings, and the cost to run the building once operational is extremely high. For example, powerful 1,000 watt lights are needed to grow marijuana, and this leads to high energy bills and a requirement for an enhanced electrical system. Furthermore, these buildings must be kept humid, which can bring about mold and mildew issues. As more businesses enter the industry prices of cannabis products will inevitability drop due to increased demand and competition, needless to say, diminishing profit margins will be realized by all, and therefore, high rents and property values will be economically unsustainable.

Today, however, business is booming. Certain locations are bringing in tens of thousands of dollars every day with no signs of sales slowing. Investors are taking advantage of this and profiting while they can, as no one can predict what the future will hold. With so much money to be made, it’s no wonder marijuana has attracted the attention of countless individuals looking to make a profit and be a part of history.

August 17, 2017 / by / in
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