Real Estate

Warehouses, Storefronts Gain Value in States With Legal Cannabis

In states that have recently legalized cannabis, investors are moving quickly to buy warehouses and retail properties to open related businesses.

Voters in Arizona, New Jersey, Montana, and South Dakota approved recreational cannabis in November 2020. Other states that have legalized it have also seen increased interest in similar properties shortly after bills were enacted into law.

However, some commercial property owners may be hesitant to work with these new businesses knowing that marijuana remains illegal at the federal level. Commercial owners may charge a premium to rent or buy their properties for cannabis purposes.

Indeed, owners have been able to charge up to three times market rates when selling or renting to businesses involved in cultivation, distribution, processing, or the sale of cannabis, The Wall Street Journal reports.

For owners willing to lease, “it’s like holding the winning lottery ticket,” Anthony Coniglio, owner of NewLake Capital Partners Inc., told The Wall Street Journal. Coniglio’s NewLake Capital Partners Inc. owns 19 properties in eight states leased to cannabis businesses. “The retail properties can generate sales per square foot comparable to some of your top retail stores in the world,” he adds.

“People know they can charge cannabis an absurd amount,” Patrik Jonsson, regional president for the Northeast of Curaleaf, a Massachusetts-based company, told The Journal. “It’s the new norm.”

In some places like Colorado and Oregon, oversupply within the cannabis business has grown into a concern. Some places have seen real estate prices soar and then fall after the surplus, WSJ reports.

Currently, 36 states and the District of Columbia permit medical or adult use of cannabis. Retail sales are expected to surge to $23.4 billion by next year, according to NewLake, as reported by The Wall Street Journal. Eleven states, plus Washington, D.C., now permit recreational use for adults. The U.S. House of Representatives in December passed H.R. 3884, the MORE Act of 2020, to legalize marijuana on a federal level. Observers expect that bill will serve as a foundation for a more comprehensive piece of legislation by the current Congress with a stronger regulatory framework. If federal legalization occurs, investors, lenders, and real estate companies forecast a dramatic increase in the business.

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