Home ownership close to a business with a name like Herban Underground, High Rollers or Dr Releaf could yield a bonus upon a resale. And neither Potco nor WellGreens refer to a bulk products warehouse or a pharmacy chain store. All these are real names of Colorado marijuana shops.
But serious headlines from a variety of sources state this mystifying side effect of legalized cannabis:
“Will Legal Marijuana Give Home Prices a New High?” — Realtor.com.
“The Marijuana Business is Really the Real Estate Business” — FloridaMarijuana.net.
Before cannabis legalization spread across the land, this real estate phenomenon would have been laughable. Indeed, one leading Sarasota-Manatee Realtor howled at the very thought when asked for comment about the possibility of such a positive pot impact here.
The growing trend may not be on anyone’s radar here — or statewide, the Florida Realtors organization suspects — but could that change as Florida’s fledgling medical marijuana market sprouts dispensaries?
To date, there’s but one dispensary operational today in the Sarasota-Manatee area, a Trulieve outlet on Tamiami Trail in Bradenton. Its grand opening last month attracted a standing-room-only crowd.
The pot landscape here appears poised for expansion, though. Sarasota-based medical marijuana company AltMed and the Tallahassee-based Truelieve chain both filed applications only days apart this month to open dispensaries in Sarasota County. AltMed seeks to open a cannabis outlet on Fruitville Road by Honore, and Trulieve wants one at Jacaranda Boulevard and Center Road in Venice.
Trulieve, one of Florida’s seven licensed medical marijuana merchants with numerous pot shops in operation around the state and more in the works, secured Bradenton approvals before the City Council adopted a moratorium in October.
Sarasota County allows retail outlets under a special exception regulation that mandates public hearings. North Port and Venice are on the verge of final approval of dispensaries. Manatee County adopted an ordinance that affirms language in state statute, that marijuana dispensaries be allowed under the same zoning as pharmacies and be separated from schools by at least 500 feet. Sarasota and Longboat Key adopted moratoriums as did Bradenton, Palmetto, Holmes Beach, Bradenton Beach and Anna Maria.
What’s the impact?
The cannabis clout is on a roll in both the residential and commercial real estate markets in other states. Several scholarly studies support pot’s real estate impact. But that depends on several factors.
Twenty-nine states have legalized some form of marijuana use, either medical, recreational or both. In the November election, California, Massachusetts, Maine and Nevada joined Alaska, Colorado, Oregon and Washington with laws allowing the recreational use of cannabis. Sunshine State voters approved medical pot in November via Amendment 2. The ballot initiative included a July deadline for implementation.
Realtor.com reports the four states with at least a year of experience with recreational marijuana sales showed a marked increase in home prices — well above the national median price. Coincidentally, the price charts for those four states show almost identical upward trends. As Realtor.com states, “Recreational marijuana is likely to have a big impact on home buyers, owners and sellers.”
Even Washington, D.C., which only legalized medical marijuana like Florida, sports a similar upswing in home prices.
One of the academic studies, primarily from two University of Mississippi economics professors, estimates that Colorado’s legalization of recreational cannabis and local governments’ approval of retail outlets within their jurisdictions increased housing values by an average of 6 percent. (Florida, like Colorado, allows local governments to ban cannabis.) The sharp price rise “is likely due” to pot shops “inducing strong housing demand,” the researchers’ report states.
The highly detailed study found recreational marijuana laws “obviously attract more migrants — whether it be marijuana users, entrepreneurs or job-seekers — to relocate, which drives up housing demand.” And, as existing residents become more willing to remain in place, the housing supply drops as demand rises, thus the increase in property values.
The rather lengthy equations the researchers devised to reach their conclusions would make Einstein proud and speaks to their scientific approach. A natural logarithm, indicator variable, vector, demographics, and fixed effects are all part of the multiple equations. Good luck following the explanation of the interplay between all these factors.
A second study, from the University of Wisconsin School of Business and economics researchers from two additional universities, focused on property values in Denver and found that homes near retail cannabis outlets — within just 0.1 miles — gained 8.4 percent more in value than houses just steps further away, from 0.1 to 0.25 miles. That big increase amounted to almost $27,000 for an average house.
A Realtor.com analysis published last year compared median home prices in Colorado from the first six months after the debut of pot shops in January 2014 with the first half of 2016. The increase? From $248,000 to $298,000, a 20.4 percent jump, far higher than the 15.2 percent registered across the nation. The Rocky Mountain state’s booming population accounts for some of that.
Realtor.com qualifies the numbers: “There’s no direct evidence tying the legalization of the drug to the population boom, but real estate agents say more of their clients are relocating to the state because of it.”
Furthermore, “Home prices tend to be higher in the roughly 60 Colorado cities and towns where cannabis is legal than the more than 200 where it’s not.” In hard numbers, the median sales price in the second quarter of 2016 came in at $302,500 for pot jurisdictions versus $267,200 in banned areas. The annual appreciation rate has been higher in cannabis locales, too, 12 percent versus 9 percent since 2014.
On the flip side, Colorado neighborhoods harboring grow houses lose value. The pungent odor the plant emits turns off home seekers.
The Realtor.com data team did not analyze Washington state because some cities allowed sales but later issued moratoriums on sales licenses. Colorado offered the most consistent data.
The commercial side
On the commercial side, warehouses, factories and self-storage businesses in states with legalized marijuana have been converted to pot growing and processing enterprises, the New York Times found. And suburban strip malls have become homes to pot shops.
The industrial real estate market is booming as marijuana operations continue to sprout up. The upshot translates into premium prices for building leases and purchases. The smart money is on property ownership since landlords have been known to gouge marijuana tenants. One sign of all this: There’s a Denver-based real estate and business brokerage company called Avalon Realty Advisors that specializes in cannabis counsel.
Denver marijuana growers inhabited 4.2 million square feet of metro industrial space by the end of 2016, an increase of 14 percent over the previous 18-month mark of 3.7 million square feet, CBRE Research found. Roughly two-thirds of the space comes from warehouses. The average sales price of cannabis-occupied industrial properties jumped 17.6 percent from 2014 to the end of 2016, CBRE reported. Plus, in 2016 sale prices of those properties achieved a 20 percent average premium over all industrial properties.
Denver’s City Council, though, capped the number of dispensaries and grow houses in April 2016 since the Mile High municipality became overrun with pot operations. Marijuana dispensaries far outnumber Starbucks outlets in the state — by five times. The number of individual marijuana dispensaries within Denver’s city limits stood at 235 by the end of 2016.
As the Colorado market cools from saturation, states with recent marijuana legalization are now entering the quickly changing landscape in commercial real estate, particularly California and Massachusetts. The states with newfound cannabis laws are looking to Denver’s industrial market to gauge the potential impact on their own market fundamentals, CBRE wrote in a June 2017 analysis.
Arcview Market Research, a division of the Oakland-based marijuana company Arcview Group, forecasts California’s legal marijuana industry will be worth $5.8 billion by 2021. Nationally, Archview predicts revenues from the industry will soar from $6.7 billion in 2016 to more than $21 billion by 2021.
The pot industry could go up in smoke should U.S. Attorney General Jeff Sessions implement new federal policies to crack down on legalized recreational cannabis. The impact on medical marijuana is not clear.
The question of whether Florida’s real estate market could see fresh dollar signs is pretty iffy, especially on the commercial side. Currently, there are strict limits on cultivation operations. To get a grow license, an applicant’s nursery must be at least 30 years old and should also possess at least 400,000 plants in cultivation. Plus, applicants should be able to prove they have a financially viable business plan backed by $2 million for start-up costs and show licensing officials they have the ability to finance their operation for at least two years without going bankrupt.
Unless the rules change, it appears only dispensary locations could influence real estate in the Sunshine State — on the residential side. Limitations on potential retail medical marijuana sites, and bans by cities, look likely to snuff out the potential realized in other states.