The marijuana business is growing, and companies are in need of properties to accommodate, but inventories and regulations are tight in places where it’s legal.
Commercial real estate practitioners are reporting significant demand for warehouses, land, and storefronts for marijuana businesses in states that have legalized cannabis, according to the National Association of REALTORS®’ newly released “Marijuana and Real Estate: A Budding Issue” report. The report—a survey of more than 8,000 members practicing commercial real estate—examines the legality of marijuana in terms of medical or recreational use and its impact on the real estate market.
“The dynamics of marijuana have been far-reaching over the past year, which is evident when you see how it has impacted real estate,” says Jessica Lautz, vice president of demographics and behavioral insights for NAR. “As the marijuana laws continue to evolve, REALTORS® have witnessed increased demand for commercial properties to store, grow, and sell marijuana.”
But the commercial sector also reports several challenges in finding properties. More than one-third of survey respondents in states where marijuana has been legalized the longest say that inventory has been tight. Respondents in states where marijuana has been legalized more recently also are reporting difficulty finding enough real estate properties for growing or selling cannabis products.
When they do find a property, they’re facing restrictions from landlords, including residential properties. “We saw that a number of property owners at some point in the past had difficulty leasing their property after a previous tenant consumed marijuana there over an extended period,” says Lautz. “To avoid repeats of those issues, landlords have implemented various guidelines that place numerous restrictions on the use of marijuana.”
That has driven more purchases. Twenty-nine percent of commercial agents in states that legalized recreational marijuana over the last four years reported growth in property purchasing over leasing in the last year. Nearly half of those states that legalized both medical and recreational marijuana before 2016 reported seeing addendums added to residential leases restricting growing on properties. Properties with the most constraints tend to be in states where marijuana has been legal the longest.
Also, homeowner associations regularly have policies or restrictions in place pertaining to smoking and growing recreational marijuana in common areas or exposed areas. Nearly half of homeowner associations were against smoking in common areas, according to NAR’s report.
On the other hand, medical marijuana use may face fewer burdens in real estate. Properties used for medical marijuana saw fewer restrictions from landlords. Sixty-nine percent of commercial members in states where only medical marijuana is legal say there were no additional addendums on their leases concerning marijuana plants.
“As the marijuana industry evolves, both commercial and residential landlords are balancing efforts to profit from the progressions, while also ensuring that their property remains desirable and at a high value,” Lautz says.