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Legalized Marijuana: What It Could Mean For California Real Estate

Written by Jaymi Naciri Posted On Wednesday, 03 January 2018 13:04
Legalized Marijuana: What It Could Mean For California Real Estate Big Buds

If you happened to be among the first customers at San Diego's Mankind Cooperative on January 1, you got a little something extra with your newly legal recreational marijuana purchase: a "commemorative T-shirts showing astronauts on the moon and the phrase ‘A giant leap for mankind,'" said The Los Angeles Times.

The celebratory attitude extended up and down the coast of California on this, the first day of legalized recreational pot. But legalization is not just a boon for those looking to get high. In other states that preceded CA, it's been high times for tax revenue, too.

"Californians voted to legalize recreational marijuana in 2016, and the historic law permitting such businesses took effect New Year's Day - creating the largest legal pot market in the country," said the Ventura County Star. "In the coming year, legalization is set to raise hundreds of millions of dollars in taxes, to alter law enforcement practices and to shift the center of gravity for the five other states that allow adults to purchase pot."

Despite the legalization, "There are still many regulations that are being sorted out by various cities in California," said HML Investments. "In San Jose, for example, local governments have completely banned the sale of recreational marijuana. Other cities are working out regulations such as the cannabis businesses must be a specified distance from schools."

But that hasn't stopped commercial and residential real estate prices from rising, particularly in industrial areas where warehouses are tempting enterprising folks. Aaron Johnson, a real estate lawyer in Monterey County, CA, has seen the impact firsthand. "Literally within a period of two weeks I saw the prices go from $50,000 an acre for undeveloped industrial land to about $300,000 an acre," he said on HML Investments.

Where will the money go?

"In Nevada, revenue from a 15% tax on wholesalers gets funneled into the state's education budget, while a 10% tax on retail sales gets put into the state's rainy day fund," said FORTUNE. Much of Oregon's revenue is earmarked for education, law enforcement, and treatment of addictions. Colorado, the model for recreational marijuana as the first state to legalize sales, "has raised more than $500 million in tax revenue since January 2014. This comes from a 2.9% state tax on all marijuana sales along with an additional 15% excise tax and 10% special tax for adult-use weed sales," they said. Those taxes have largely been directed back into infrastructure in the way of schools, roads, and city budgets. reports that legalized marijuana could potentially create "more than 100,000 new jobs and billions of dollars in new tax revenues. California, the most populous state in the U.S., boasts the sixth-largest economy in the world. 

It remains to be seen what will be done with pot revenues in California; thus far, there has been no indication that any of it would "be dedicated to the general operations of local governments or schools," said The Cannabist. Although, "an estimated $1 billion in new tax revenue would be directed toward specific new or expanded programs such as drug use prevention and treatment, helping at-risk youth, law enforcement, environmental clean-up and research," they said.

Who will be the big winners?

Not surprisingly, landlords will be among the biggest winners - both those who have factories and warehouses and those with rental property in CA and other states where marijuana has been legalized.

"Factories and warehouses near Portland (Maine) that once produced and stored parts for model homes, steel beams and tires are already filled with budding marijuana plants," said the New York Times. "These are factories that were sitting empty," Drew Sigfridson, a local broker with the Boulos Company told them. "Chuck Allen, a commercial broker with Keller Williams Realty who works in Monterey, said that in the last few years, more than 20 major transactions worth roughly $100 million have closed, and prices are on the rise."

Realty Times wrote about the impact of legalized weed in 2016, and, especially, the impact on the real estate market in Denver, which has been marked by skyrocketing prices, dwindling inventory, and all-cash purchases.

"Denver is the model that's widely used when taking a look at the relationship between legalized marijuana and real estate, and for good reason," said BeSmartee.

"For almost three years, the housing market in Colorado has been on the upswing, but has this been due to the legalization of marijuana? Many think so. As one of the hottest housing markets in the country, home prices in Denver have increased by double digits and outstanding inventory has fallen for homes. Multiple offers frequently drive up the prices of homes and lead to bidding wars. Just within the last year, Denver median sales prices increased $32,500 (11%). The average price per square foot for this same period rose to $308, up from $276."

The problem that creates: "The rising home prices are out of reach for most middle income families," they said. With California prices already so high, the dreams of those looking to relocate for legal weed may be up in smoke.

And then there is location issue. In Colorado, proximity to some marijuana businesses is not necessarily a positive. "Colorado homes within a half-mile of a marijuana business often have lower property value than homes in the same county that are farther out. But not all marijuana business are a buzzkill for home values," said "Neighborhoods with grow houses are the least desirable, with an 8.4% price discount. But retail shops, especially with the rise of the new generation of stylish pot boutiques, have almost no negative impact."

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