How the legalization of Marijuana could affect real estate

Disclaimer:  This is a neutral article.

The legalization of marijuana has been a hot topic for the last several years, with 23 states permitting the use for medical purposes, and 12 of those states permitting recreational use as well.  You have a good percentage of the population supporting the legalization for a variety of reasons including medical purposes, recreational use or because it could produce a large taxable income for the state.  It’s possible it could produce a huge revenue source from taxation, but the question arises: What affect could it have on real estate?

 

Marijuana is still illegal on a federal level

Because marijuana and other THC containing products are illegal on a federal level it causes issues.  All cannabis operations are allowed to continue on by the state they are in.  This means the government could step in any time and shut down anyones operation.

This could have a negative affect on real estate values, as the popularity of marijuana related business increase they will require land and infrastructure to operate.  Banks and landlords may be hesitant to extend financing to these businesses because they fear losing the property.  They could suffer “Asset forfeiture” on a federal level.

The demand is there

It’s clear there is  demand for legalization, if and when this happens it will release flood of new business opportunities.  Banks that have been avoiding financing marijuana operation will begin to lend, making billions.  Real Estate that has previously gone unused because of its price or location will be purchased, this will cause a proverbial “Green Rush” that will increase values of homes and per capita wealth.

It could create a “shift” in demographics

Depending on regulation and zoning requirements there could be a massive shift in the population of certain areas.  If a dispensary or cultivation center arises in a particular area, it could potentially draw new home buyers and renters into that area, shifting the entire demographic of the neighborhood.

Lending concerns

The cannabis industry has made such an impact that Fannie and Freddie Mac are including new rules in their lending practices.  If a home is purchased with cash from a marijuana related industry, and the owner then wants to refinance the home to take equity out, this can be considered money laundering and is not allowed under the new rules.  This could make it difficult for certain employees of larger companies.

We had an instance where a client worked for a well known supplement / vitamin retailer.  This retailer had a line of products that contained CBD.  This client wanted to purchase a home but the lender disqualified the application because their employer had a product line in a federally illegal industry.

Here is a video on real estate concerns and lending to the marijuana industry

The Take Away

The bottom line is we do not know what kind of affect the legalization of marijuana and marijuana related industries will have on real estate prices across the nation.  It goes without saying there is a high demand for these items, ands a public desire to make them readily available.  Because of this high demand it is possible that legalization will boost the real estate market as marijuana related industries move into the area and people migrate to be part of it.  Commercial real estate will likely move at a higher price and faster rate as these businesses seek properties to conduct their operation.

Or it could go the other way, and legalization would drive good homeowners out of reputable areas due to the influx of “undesirables”.  The only safe thing to say is there will be an affect and we are in an ever-changing time in history.

 

Thank you,

 

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Executive Mortgage