How has the legalization of both medical and recreational marijuana impacted the commercial real estate market?
In Pennsylvania, medical marijuana was first legalized by then-Gov. Tom Wolf in 2016 and became available to qualified applicants in early 2018. Recreational marijuana is not currently legal. Even with the legalization of just medical marijuana, there have been effects on the market. According to NAR’s 2023 Marijuana & Real Estate: A Budding Issue report, in states where marijuana use is legal, more than a quarter of agents reported a stronger demand for warehouses; 18% said storefront demand has grown and 13-15% reported land demand has increased.
“The impact of the legalization of medical marijuana has, at least in Philadelphia County, had little effect on the commercial real estate sector in the past few years,” said SJ Ayoub, CCIM. “There was a surge of interest after the ruling passed in 2016, but that simmered down shortly after due to zoning restrictions and cost and competition for licenses. As the current commercial real estate market shifts, we have seen interesting adaptive reuse of existing assets. With the wave of bank consolidations happening, branches have closed by the hundreds nationwide. We have received interest from cannabis dispensaries for former bank branch sites, especially those with a drive-thru and vault. Amenities like those are expensive to build from scratch and provide a convenient and secure location for this type of business.”
The survey respondents echoed the sentiments Ayoub voiced. Only 7% of respondents said they are currently leasing a facility to a marijuana company. Fifty-one percent of members in states that are medical marijuana-only said they have no concerns about leasing to a marijuana company, while 44% are concerned about the smell and 14% are worried about thefts on property. However, 53% of agents in prescription-only states note there was no change in the perception of crime near dispensaries; only 2% reported an increase in perception, 42% said they were not sure. Less than 1% said there was an actual increase in crime and 52% said there was no change.
Seven percent of agents in medical-only states reported an uptick in demand for land, but 14% reported a growth in demand for warehouses and 23% said there was a rise in demand for storefronts. Sixty-six percent said there had been no change. Seventeen percent said commercial property values near dispensaries increased, while 8% said they decreased; 36% reported no change. Eleven percent said that commercial property values near growing land increased, 3% said they decreased and 18% said no change.
“As far as the future goes, we are very bullish on this sector,” added Ayoub. “Getting into this type of business is very capital intensive. This limits the space to players who can afford to navigate through the legal and zoning processes. That process has become significantly more transparent, but still requires working knowledge of the local rules and regulations to navigate it economically. Furthermore, underwriting this type of business is critical so that lending and insurance can be obtained. We feel our knowledge in market analysis and underwriting, coupled with our relationships, positions us to be able to take full advantage of the opportunity once the state legalizes recreational.”