Source: MJBizDaily —
Experienced cannabis entrepreneurs know that ancillary companies such as construction and banking providers often charge marijuana businesses more than their non-plant-touching counterparts—the so-called “green tax.”
The green tax applies to real estate, too. Marijuana businesses regularly pay premiums for properties, whether they are retail storefronts, land or warehouses for cultivation and manufacturing.
“Yes, there is a cannabis premium,” said Berekk Blackwell, the chief operating officer at Scottsdale, Arizona-based Zoned Properties, a cannabis-focused commercial real estate leasing and investment company.
That premium, Blackwell and other cannabis industry observers say, has a few main drivers that most other industries don’t have to contend with—at least not to the same degree as marijuana businesses.
These drivers include:
- Restrictive land-use and zoning regulations.
- Holding fees that cannabis business owners pay landlords to keep property vacant until they receive business licenses as well as other contingency fees.
- Landlords and property sellers who perceive cannabis businesses as cash cows that can afford to pay premiums—especially because of limited availability.
- Landlords who perceive that renting to cannabis businesses puts their own land deeds, mortgages and bank notes at risk.
“The reasons are a little bit of everything. It really comes down to supply and demand,” said Chris Cox, principal with BeGreenLegal, a cannabis consulting firm in Sacramento, California. “The starting point is, if you’ve ever tried to get a land-use permit for cannabis, you’ll know that it’s pretty difficult compared to just locating any business. There are many requirements starting at the state level.”
The good news is that in more mature markets, real estate prices for cannabis businesses are softening, and there are strategies to minimize premiums in newer, still-evolving markets.
Land-use restrictions raise real estate prices
Among the most common inflators of cannabis real estate prices are zoning regulations and land-use restrictions.
“The first driver is restrictive zoning,” Blackwell said. “Municipalities will typically set up one or two commercial or industrial zones, but they’ll also layer in additional restrictions around setbacks from sensitive uses such as churches, schools, parks. When you layer in those two factors, the supply of available, compliant real estate gets pretty small pretty fast.
“When you have a high-demand area—maybe a metro area or just a desirable place to do business—but there’s only 12 compliant pieces of real estate, and you have many groups chasing those, it’s going to drive the price up.”
Ryan George, CEO of Sacramento-based 420 Property, added: “It’s the principle of supply and demand.”
Fees, financing and fear
