Nearly a decade ago, Colorado became the first state to legalize recreational cannabis. Now, 37 states have medical marijuana programs, with 18 of those also allowing adult-use for individuals over age 21. Perhaps even more significant is marijuana’s growing popularity and increased mainstream acceptance which have contributed to a meteoric rise in sales.
According to the CDC, more than 48.2 million people in the U.S. consumed cannabis in 2019, solidifying it in the trifecta of the most commonly-used drugs behind alcohol and tobacco. Regardless of whether individuals participate in cannabis consumption, a majority of Americans support its legalization. A survey conducted in April by the Pew Research Center showed that 91% of U.S. adults agreed marijuana should be legal in some form, either medically or recreationally, with only 8% saying marijuana should be illegal.
This growing wave of support is reflected in the industry’s exponential growth, with sales reaching $17.5 billion in 2020, an increase of 46% from 2019. New York and New Jersey, two of the largest cannabis markets in the East, approved legalization this year and are poised to generate multi-billion-dollar revenues in their first few years. In the Midwest, Illinois has already closed in on $1 billion in sales, according to data released by the Illinois Department of Financial and Professional Regulation, and at this writing the year isn’t over yet.
Every region in the U.S. is currently represented in the growing cannabis economy and legalization measures on the 2022 ballot are anticipated in red states, such as Idaho, Missouri and Wyoming. This level of approval stems from a shift in public opinion as well as an increased recognition of the industry’s economic benefits. Cannabis, often called a disruptive industry, holds true to this title, offering niche opportunities across multiple sectors. From the more obvious arenas like commercial agriculture and healthcare, cannabis is providing new channels for growth and reshaping traditional markets like real estate.
The Impact of Cannabis on Commercial Real Estate
Property has always been considered an attractive investment and cannabis has only improved it. In the U.S., the value of industrial-zoned properties in the commercial real estate sector is $1.5 trillion. When comparing the U.S. cannabis industry’s economic impact against total GDP, estimates illustrate that cannabis development projects will create a Total Addressable Market of $50 to $75 billion in commercial real estate, accounting for about half of a percent of industrial real estate.
But the rewards of these investments also pose risk and complexity. Cannabis real estate is primarily regulated by local municipalities which oversee community zoning and permitting regulations. In the U.S., approximately 39,500 local governing bodies have control over cannabis development projects. The success of these projects is most often determined by the experience of the teams behind them.
Zoned Properties, a Scottsdale, Arizona-based commercial real estate and development firm, has introduced new services in the past few years specifically designed to enhance the value of cannabis real estate and mitigate risk for investors in highly regulated industries.
“The early years of the cannabis industry exposed how traditional professionals and firms were either unwilling or unable to adequately meet the needs of commercial cannabis development. Zoned Properties recognized the void and began building multiple divisions that could identify, develop and deliver successful real estate projects from concept to finish,” stated Bryan McLaren, CEO at Zoned Properties.
The firm currently offers advisory, brokerage, franchise and proptech data services to clients across the country. This multidimensional business model includes custom-built solutions that were developed and refined after years of direct project experience in highly regulated industries.
Zoned Properties’ latest service to impact the market and unlock growth potential is Rezone, a new proptech data platform. Specifically designed to streamline the process of finding and securing cannabis properties, Rezone is democratizing access to commercial real estate intelligence, making land use data more accessible and compliant properties easily identifiable.
“We’re harnessing data to provide operators, investors and those interested in the cannabis space the ability to independently search for buildings and land that meet state and municipal regulatory requirements for their cannabis project,” explained Rezone Co-founder Matthew Player, who is also the founder of Zoneomics.
Rezone integrates multiple layers of data and is a valuable resource for project teams and real estate professionals to easily browse available inventory.
The Community Benefits of Cannabis Real Estate
The impact of cannabis legalization on commercial real estate goes beyond new technology and services, or capital growth opportunities in a competitive market. Cannabis is also driving community improvement in both urban and rural areas. Operators are investing significant resources to repurpose and update underutilized or derelict properties.
In Arizona, Zoned Properties estimates that commercial real estate and development opportunities could reach close to $1 billion over the next five years. This far outweighs the $300-400 million medical marijuana real estate development has accrued since implementation in 2012.
“One of the largest development projects for a medical marijuana facility neared $40 million in capital investments. We expect to see these numbers hit closer to $100 million in response to demand from the recreational market,” Zoned Properties’ McLaren continued.
These investments, coupled with increased tax revenue from cannabis, have led to further improvements in public services and infrastructure, ultimately impacting residential property value for the better.
Colorado alone collects more than $20 million a month in tax revenue, while California collects over $50 million per month from legal recreational marijuana.
According to a recent study by Clever Real Estate, between April 2017 and April 2021, property values rose by more than $17,000 in states with adult-use cannabis programs, compared to markets where marijuana is illegal or limited to medical use. Home values in states that have enacted legalization measures, but where sales have not commenced, are expected to increase in value by an average of $61,343, the study said.
As more markets move toward full legalization, a community-forward approach to the market landscape is central to the overall success of the cannabis industry.
“We believe it’s essential to thoughtfully integrate legacy cannabis operations into our modern communities,” stated McLaren. “This will ultimately further advance the industry and ensure it continues to thrive, along with our local economies.”
