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Marijuana Legalization Means a Land Grab for Investors

Commercial Real Estate Investors Prepare for the Growth of the Cannabis Industry

Credit: Getty Images
Credit: Getty Images

When voters passed Colorado Amendment 64 in 2012 , which made Colorado the first state to legalize the recreational and medicinal use of marijuana, the legislation was a progressive step forward. Today, 10 states allow for legal recreational and medical marijuana use , and another 23 have passed statutes legalizing medicinal marijuana.

Unsurprisingly, the cannabis industry is seeing explosive growth. Projections are that by 2025 it could be worth nearly $150 billion dollars . In states like Colorado, which boasts a booming cannabis culture, and California, where there is plenty of open land for future growth, commercial real estate investors are taking notice.

Real estate investing in the burgeoning cannabis market is exploding as the land grab continues not only for agricultural acreage, but also for industrial and office spaces that cater to the industry.

The "New Green" Land Rush

Land is a key addition to any portfolio for many commercial real estate investors, and in states like California, Colorado, Washington, Nevada, and Oregon, there is a new land grab underway. With more states continuing to approve or decriminalize marijuana use, legal supplies for production are currently limited—creating an opportunity for builders and investors to jump into the supply chain.

Investors cite the need for new land and buildings for growing, warehousing, and processing facilities. For areas that currently have abandoned warehouses and space available, investors see an opportunity to take existing buildings and convert them to support growth and supply operations.

In Colorado, Pueblo County is one beneficiary of such investment, which was much needed after the 2008 financial collapse. According to County Commissioner Sal Pace , the influx of cannabis-related construction accounted for approximately 50% of all county construction after the law went into effect in 2014. He, and the rest of Pueblo County, are trying to make their home the new "Napa Valley of Cannabis."

In California, commercial investors are looking at more than just warehouses for the cannabis supply chain, and are also considering large scale business parks that will host office buildings, coworking spaces, and retail hubs.

Looking Beyond Land to Retail

The other notable space where real estate investing and the cannabis industry intersect is in more conventional retail leasing opportunities. Landlords who have office or building space that can be built out to incorporate dispensaries have a lot of growth potential.

Since there are a lack of available spaces willing to cater to businesses in the marijuana industry, landlords are able to charge a premium. The newness of the industry also means there's concern about potential risks, so landlords who do work with dispensaries must make sure they have all the proper permits and meet the legal requirements set by the local county and state.

Leaving the zoning and regulations set to local governments also presents an interesting opportunity for real estate investors . In California, for example, real estate agents and investors note that in areas zoned for marijuana distribution, the average square foot price of retail and building spaces has increased.

Potential Challenges

While there is plenty of opportunity for real estate investors to make a move into the cannabis industry, it doesn't come without complications.

First, there are the legal ramifications. As federal law currently stands, marijuana usage in any form is illegal, which makes for some tricky maneuvering when it comes to securing bank loans or mortgages.

As the industry has grown and stimulated local economies, the pressure to change the strict rules and regulations around banking to ones that are more accepting of this new industry has increased. Members of Congress, especially those representing constituencies that are increasingly relying on the cannabis industry for jobs, are pushing for new legislation to address these issues .

The SAFE Banking Act is one such solution, as it removes the risk around banking within the marijuana industry and opens up more opportunity for transactions. Other options currently being explored include opening up new banks specifically tailored for the marijuana industry.

Understanding the Opportunity

For real estate investors focused on commercial deals who are actively seeking potential opportunities in a new industry, marijuana checks a lot of boxes.

While there are still additional challenges that come with these sorts of transactions compared to others, there's no doubt the cannabis industry seems poised to see dramatic growth in the coming years.

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