The legalization of medicinal and recreational marijuana is poised to boost California real estate in more ways than one. As we head into this uncharted territory, the implications for residential and commercial real estate are potentially significant.
Will homebuyers get the proverbial “munchies” for cannabis-friendly properties? On the other side, will landlords tolerate the growing cannabis industry, or will cannabis businesses be forced to purchase their own properties?
Cannabis in commercial real estate
For commercial real estate, cannabis is having the biggest impact in the industrial real estate sector, according to GlobeSt. Here in California, landlords of industrial space have been cashing in on the growing cannabis business, as previously less-desirable properties have suddenly found a new life in the cannabis industry.
Industrial space is used in the cannabis industry for:
- warehousing; and
- storing cash.
Businesses dealing with cannabis products are unable to use the U.S. banking system due to federal regulations, hence the need for a place to store cash. Some banks previously allowed banking with cannabis businesses under the Cole Memorandum, which offered guidance allowing banks to interact with cannabis businesses located in states where they were legally allowed, but this was rescinded by the Federal Judiciary in January 2018.
Production is concentrated in Santa Barbara and Humboldt Counties. While some growing occurs outdoors, the majority of cannabis produced in the state takes place indoors, where production is easier to control and harvests occur three times a year.
However, some landlords have only been making it harder for small cannabis businesses to operate. This ranges from seeking to avoid liability and outright evicting businesses from their property, to hiking up the rent by extremes, taking advantage of the extensive infrastructure the business has already invested into the property.
As a result, many large cannabis businesses have chosen to purchase industrial space and avoid landlords altogether. In California, cannabis investors are investing millions of dollars in real estate each year.
Cannabis in residential real estate
Prior to the passage of Proposition 64 in 2016, residential real estate agents were hesitant to discuss how cannabis growers planned to use the property. They didn’t want to get involved in a legally sticky situation, and clients likewise didn’t want to open themselves to any trouble.
But now that growing is legal — state law allows up to six plants in a residential home — real estate agents are more willing to discuss the unique property needs cannabis growing requires of clients and help buyers weed through the homes available in their price range with growing cannabis in mind.
To remain relevant, real estate agents can find out what the local laws are around growing, as they can vary greatly even in neighboring cities. For example, Costa Mesa in Orange County allows homeowners to grow indoors without a permit but does not allow outdoor growing. In nearby Anaheim, growing is allowed both indoors and in backyards — but not in front yards. Meanwhile, in Newport Beach indoor and outdoor growing is allowed, regardless of whether it takes place in the front or backyard.
Explore local residential and commercial cannabis laws across the state at the Orange County Register, here.