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Sunday, November 1, 2015

Potential Impacts to the Real Estate Market from Legalization of Marijuana

By Amy Erixon, Toronto                                                     

The US has also been liberalizing its treatment of cannabis, with Colorado being the first North American jurisdiction to legalize it entirely, in 2012.  Public support in the US of legalization peaked at 58% that year and currently stands at 53% nationwide as numerous experiments in decriminalization and commercialization of the industry unfold. 

 Status of marijuana laws by US states, according to Wikipedia:   

Only 11 US states have failed to liberalize marijuana statutes while 15 states have decriminalized possession entirely - a policy supported by President Obama to reduce incarceration rates and terms associated with non-violent crimes, and disproportionately affecting minority youth.  
My December, 2013 blog forecasted that the law could be a boost, both directly and indirectly to the local real estate market, particularly for industrial space.  In practice that has come to pass, with returns for the entire Denver industrial market in 2014 substantially outpacing every other sector of the US real estate market, although grow-ops occupy only 3% of the standing inventory.    Retail properties have been favorably impacted at the margin, but the most important impacts have been swelling tax receipts ($134 million in revenue in 2014) and regional boost to the GDP associated with all aspects of the industry including tourism. 
In Washington State the impacts have been more muted.  Regulatory controls are tighter and taxation is so steep (45%) that little progress is being made to stamp out the black market, which often turns up in the parking lots of licensed dispensaries.  In both states experts believe that the GDP benefits of being a “first mover” are outsized due to supporting production for medicinal sales in neighboring states which may be repatriated as more states move toward legalization.  
In practice, a majority of the problems that have arisen are a result of conflicts between the federal statutes and laws at the local level, which would be avoided if Canada acts at the Federal level first.   The most serious problem to date has been the federal rules which preclude transaction support by chartered banks for activities deemed illegal at the federal level, regardless of contradictory local laws.   As a cash only business, the number of potential landlords is severely reduced (to properties where there is no mortgage), and the incidence of robberies increases where large amounts of cash are being handled.  This too may have contributed to disproportionate rent increases for properties shouldering the burden of these complications. 
However controversial legalization might be, a federal law clarifying the rules going forward would help to avoid some of the issues being experienced south of the border with a more piecemeal approach - and could also be seen as an early win for the Liberal government.


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