The ongoing nationwide movement to legalize cannabis is certainly poised to provide a number of benefits for our economy and overall livelihood, but that doesn’t mean there won’t be any negative side effects. As California braces itself for the likely passing of Proposition 64, a measure that would fully legalize cannabis in the state, the commercial real estate market is expected to be greatly impacted as a result.
We’ve already seen the exponential real estate inflation that took place in Colorado shortly after recreational legalization, and in California, which is the most populated state in the US, the impact is sure to be even greater. According to Mark Bowen, the vice president of the Denver office of DCT Industrial Trust, the marijuana industry had caused the cost of warehouse space in Colorado to shoot up by over 60%, and also increased lease renewal rates by 25%.
Judging by these numbers, it’s safe to assume that those involved with commercial real estate in California will greatly benefit from legalization, especially when you consider that warehouse spaces across the state already costs a pretty penny. When you couple the demand of commercial real estate from legalization with the risks that arise from leasing these commercial spaces to cannabis owners, such as federal civil asset forfeiture action, you have a very lucrative market on your hands.
According to the Wall Street Journal, most moderately sized indoor marijuana farms or packaging and storage facilities are housed in warehouses that range from 8,000 to 20,000 square feet. In California, these types of warehouses for marijuana cultivators and businesses are already financed with loans that are priced in the millions.
For instance, one 16,885-square-foot warehouse in the area of Los Angeles and Anaheim is financed by a $1.78 million loan, which was issued by L.A.-based Pacific Western Bank in 2012. According to Ely Razin, the CEO of CrediFi, which is a big data platform serving the commercial real estate finance market, the time to be involved with California’s commercial real estate has never been better.
“The timing is right for those involved in industrial real estate or in the cannabis industry in California — or other states that end up legalizing recreational marijuana — to spark up some warehouse deals as the haze surrounding the election gradually begins to disperse,” he recently wrote in an op-ed piece for Forbes.
All in all, you can fully expect the already lucrative commercial real estate market is California to boom if Prop 64 is passed.