One of the oldest industries on Earth – real estate – is about to join forces with one of the newest – cannabis. The result is Cannabis Real Estate. Take a closer look at one of the most exciting new sectors for investment in the property market today.
The profile of states that have legalized marijuana and its derivatives is changing rapidly. In 2021, The majority of states fall into one of three categories:
- Marijuana is legal for recreational and medical use;
- Marijuana is legal for medical use only;
- Marijuana possession in small amounts has been decriminalized.
In states like West Virginia and Louisiana, the legalization only covers businesses that sell for cannabis-infused products, such as oils or pills. In other states where it has not be legalized, like Virginia, doctors are permitted to write a recommendation, not a prescription, for cannabis-related treatments.
Cannabis-related Property Types and Their Values
While the first type of commercial real estate that comes to mind is customer-facing, either a retail storefront or a medical dispensary, there are many parts of the supply chain that have to come first.
Property types include:
- Cultivation areas, either on a farm or within a greenhouse
- Manufacturing plants that turn the raw materials into Cannabidiol (CBD) oil or other compounds
- Distribution hubs that handle secure storage and manage logistics
- Delivery companies that assure the right packages are delivered to the right destination within tight windows
- Testing facilities that assure quality to meet regulations and the guidelines of oversight bodies
- Micro businesses that sell and support the equipment required to operate the retail and medical locations
- Offices for online companies such as medical staff that review marijuana prescription cases over the web
The values for these properties can run from the thousands for a pre-built medical dispensary to the multi-millions for shovel-ready development parcels.
Once the establishments are built, real estate investments follow the profile of commercial development for any other industry, such as funding for regular tenant improvements of the property and projects to make the business more energy-efficient.
Cannabis Zoning Requirements
Even though cultural views have shifted about marijuana, the Drug Enforcement Agency (DEA) still classifies it as a Schedule I drug, which impacts where marijuana-related businesses can be located. 32 states and the District of Columbia have established “drug free” zones that extent 1,000 feet in every direction from the property lines of elementary and secondary schools.
Many of those states have expanded these zoning laws to protect public parks, churches, daycare centers, and public housing. Map that out and it becomes clear there’s not a lot of options for where these businesses can be located, except far from the city center. In Missouri and West Virginia, the definition of school includes colleges and universities. In Arkansas, the zones include all of those areas plus public recreation centers, skating rinks, Boys’ and Girls’ Clubs, and substance abuse treatment facilities.
In California, the laws are a bit more relaxed. For example, in Los Angeles “blue zones” indicate where dispensaries are permitted inside areas already zoned for retail and industrial uses. The required set-back area is 800 feet in every direction from schools, public parks, libraries, and drug treatment or rehab centers. In addition, dispensaries must be separated from each other by at least 800 feet.
Similarly, in San Francisco “green zones” indicate where cannabis retail locations are permitted, which must be at least 600 feet in every direction from public or private schools, both elementary and secondary. “Purple zones” grant permits based on a conditional use authorization and “brown zones” allow these businesses to be located there only with a special microbusiness license.
Conditional Use Permits and Licensing
Every state and many municipalities within those states have special laws and procedures covering permits and licenses for specific business types. Entrepreneurs would be wise to invest in a legal/government affairs specialist to do all of the necessary research and meet all of the requirements early in the planning process.
In some states, these laws are streamlined to facilitate rapid expansion and revenue generation. In California, there are three state licensing authorities: the Bureau of Cannabis Control, the Manufactured Cannabis Safety Branch, and CalCannabis Cultivation Licensing. The type of license required (such as cultivator, retailer, testing lab, and so one) determines which agency will issue the license.