Currently, 29 states and the District of Columbia (DC) have enacted laws that make the use of marijuana legal. Seven of those states, and DC, have legalized the recreational use of marijuana. Several more have legalized medical marijuana. Naturally, the growth, harvesting, manufacturing, and sale of cannabis-related products will have an impact on real estate. Real estate space will have to be dedicated to each stage of the production process from growing marijuana plants to selling the product to the end user. Here’s how borrowing and lending 420 loans for cannabis-related businesses is having an impact on real estate across the U.S.
Banks Are Out, Hard Money Lenders Are In
Even though marijuana is legal in more than half the states, it is still illegal federally. Because of that, banks see lending 420 loans to marijuana-related enterprises as risky business. If they run afoul of the federal government, the fear is they could lose their banking license. For that reason, banks have been reluctant to lend 420 loans to cannabis-related businesses for any reason, including for the purchase of real estate, an activity for which banks have historically been eager to lend money to business owners.
This reality does not mean that marijuana businesses are out in the cold, however. Many of these businesses are turning to private money lenders, instead. Inc. Magazine says the pot business is really the real estate business.
What Marijuana Product Manufacturers Use Real Estate For
Two areas of real estate development that are impacted heavily by the legalization of marijuana are commercial real estate and industrial real estate.
Commercial real estate is used for the sale and distribution of pot-related products. Whether for recreational or medical use, cannabis must be sold over the counter in places where there is no longer a prohibition against it. Therefore, retail shops and medical marijuana dispensaries are either leased or purchased to keep the product available for those who want or need it.
Industrial real estate involves the growth and harvesting of marijuana plants and the manufacturing of the end product in whatever form it may eventually take. In Denver, Colorado, for instance, marijuana growth operations grew by 14% to 4.2 million square feet from Q2 2015 to Q4 2016.
A New York Times article published in April this year reported that California saw $100 million in real estate transactions related to marijuana businesses since recreational marijuana was legalized in 1996. And across the board, in states where marijuana-related real estate transactions are taking place, real estate values are on the rise. Rents as well as buying terms are all on the rise. Cannabis is driving huge real estate transactions.
What Kind of Real Estate Properties Are Affected?
Because marijuana is a plant that is often grown indoors, mostly because it is still illegal according to the federal government and indoor cultivation allows growers to shield their operations, pot businesses need a place to grow the merchandise. This is often done in greenhouses and warehouses.
Because there are many different types of marijuana products, warehouse facilities can be retrofitted to meet the needs of manufacturers. From food products, which require kitchens and bakeries, to oils and tablets for medical use, industrial real estate for cannabis is as diverse as the broad industrial real estate category in the U.S. The space has grown so lucrative that some investment-minded entrepreneurs have established marijuana real estate REITs and funds for those who want to get in on the green without getting their hands dirty.
Then there are the storefronts. Medical marijuana dispensaries can look like a regular retail outlet or a doctor’s office. Some are simply locations where users with the right qualifications simply show up, pick up their prescription, and head home—much like a trip to the pharmacy.
In states where it is legal, marijuana has become a multi-billion business. In order to keep the production going, business owners will need to purchase or lease real estate, and many of them are borrowing the money to do so. To cover the demand, lenders specializing in 420 loans have popped up in most of the states, and they’re not expected to go anywhere any time soon.