Cannabis Spurs Some CRE Deals In States Where It's Legal, But Concerns About Leasing Linger

Investor interest in commercial properties saw more of an uptick in 2019 in states with established legal markets for cannabis than those with less-established legal markets, according to a recent commercial broker survey by the National Association of Realtors. 

Specifically, in states where medical and recreational marijuana have been legalized for more than three years, 42% of survey respondents reported an increase in demand for warehouses over the previous year. In states where both forms of cannabis have been legal for less than three years, 34% saw an annual increase in demand for warehouses, and in states where only medical cannabis is allowed, only 19% said they experienced an increase in demand for warehouse properties.

The survey also asked about demand for storefronts and land, and while those trends in reported demand weren't as pronounced as for warehouses, there were similarities. In states with more-established recreational and medical marijuana markets, 27% of respondents reported an increased demand for storefronts and 21% an increased demand for land, according to the NAR.

In states with less-established recreational and medical marijuana markets (less than three years), 19% of respondents reported an increased demand for storefronts year-over-year, and 16% reported an increased demand for land. That isn't much more than in states without recreational cannabis, where 18% reported an increase in demand in 2019, or land, where 15% reported an increase in demand.

For all of these commercial property types considered together, only 34% of respondents saw no increase in demand year-over-year in states with more-established recreational and medical markets, according to the report. In states with less-established markets, 47% saw no increase in demand, and in states with no recreational markets, 58% reported no increase in demand.

The organization also asked whether there has been any change in value for properties near cannabis dispensaries. For the most part, the answer was no. Even in states with more-established legal recreational and medical marijuana, 61% of respondents saw no increase in nearby value over the last year. In states with less-established markets, 67% of respondents reported no change, and in states with no recreational market, 82% reported no change.

The survey found that most respondents aren't leasing to marijuana-related businesses, even in states where the industry is well-established (75%). 

In leasing to marijuana-related businesses in well-established states, 22% of respondents cited no special issues, while 61% said that the potential smell from a cannabis business would be a concern. Also cited as concerns: moisture, theft of cash on properties and fire hazards.

The NAR surveyed over 600 commercial brokers in September in both states and territories where recreational and medical cannabis is legal (12 at the time, including Illinois, where sales didn't begin until Jan. 1, 2020) and those states that only allow the sale of medical marijuana, which totaled 23.