Risky Business for Marijuana Real Estate in California – Trends Influencing the legal Cannabis Market

Last year, legal marijuana sales in the US totaled a whopping $6.7 billion, increasing more than thirty percent. And sales are only expected to increase – in fact, they are projected to spike to a staggering $20.2 billion as early as 2021. With legal marijuana business booming, many entrepreneurs are scrambling to snatch up marijuana real estate in California, one of the latest states to legalize cannabis for medical and recreational usage.

There may be some trends influencing the marijuana real estate market in California, however, if we look at other states that have legalized cannabis as well. For example, in Portland, Oregon, commercial real estate is three times more expensive for marijuana businesses than other business types. Meanwhile, in Washington and Colorado, rents may be stable, but still much higher than other types of businesses.

Real estate investors tend to think that in California, cannabis real estate will continue to increase in price just like in other states, but maybe they should think again.

Federal Issues with Cannabis Real Estate

Cannabis may be legal in California, but it is still federally illegal. Meanwhile, most commercial mortgages contain policies mandating that the property be used lawfully. So, despite state laws, properties that host cannabis businesses are not operating legally.

The illegality gives banks holding mortgages the prerogative to declare the loan in default. They may then accelerate principal, making it all due immediately. What’s more, if the borrower can not find any alternative financing to cover the balance of the loan, the bank may foreclose on these cannabis business properties.

State and Local Issues with Cannabis Real Estate

Issues at the state and local level are bound to complicate the marijuana real estate market in California as well thanks to their complexity and diversity. State laws can limit how close marijuana businesses are able to be to churches, parks, schools, or even other marijuana businesses. States can also limit the number of properties that are available for marijuana business.

Meanwhile, local zoning codes can push cannabis businesses into heavy industrial areas while building codes necessitate that air quality and full fire suppression systems be in place, causing the number of available cannabis properties to plummet even further, driving market prices up.

The Trend Towards Outside Growing

Legal marijuana is indeed lucrative, leaving many cannabis businesses fighting over a few spaces. Yet one interesting trend can be seen in Washington state. Outdoor growers are quickly developing techniques increasing the consistency and quality of their cannabis, giving business owners renting warehouse space a run for their money.

What’s more, outdoor spaces in Eastern Washington counties tend to be much more affordable than suburban or urban warehouse spaces, and if growers continue to see outdoor cultivation as a good alternative, marijuana real estate prices (particularly warehouses) will be driven down.

Time Will Tell How the Market Plays Out But Some Things Are Certain

For now, everything is up in the air in this emerging, disruptive industry, and even if the Trump-Sessions administration chooses to decrease the availability of legal cannabis, there is no denying that long term trends still lean in favor of the legality of cannabis and marijuana businesses.

As this market normalizes, we can expect the lease rates for marijuana businesses to finally look like lease rates for other businesses – meaning that investors interested in marijuana real estate in California shouldn’t pay too much for property, assuming that the lease market can go nowhere but up.

Meta Description: Marijuana real estate in California is in flux. Investors may think it is smart to spend a lot on these properties but maybe they should think again.

Image Alt: The marijuana real estate in California market is evolving after recent legislation declaring cannabis legal.

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