What Real Estate Needs to Learn About the Cannabis Industry

The rest of the country is looking to us to lead the way

As one of the first states to legalize recreational cannabis, real estate professionals from Colorado have long been looked to for expertise and experience that can only come from having boots on the ground.

However, as with any disruptive industry, other market segments can be impacted as well. Energy consumption and generation is a great example. In Boulder, roughly 12% of the electric grid is now supporting cannabis grow facilities — an industry that virtually didn’t exist over a decade ago. 

The commercial real estate industry also changed in ways even the most seasoned veterans didn’t see coming.  In Denver, any property zoned so that either a growing or retail cannabis operation could be accommodated quickly increased by as much as three times in value because the potential tenant base grew exponentially overnight. While it quickly stabilized at a lower value, it remains about double the pre-cannabis values as the entire market had to re-adjust to support the decreased vacancy rates.

Today, nearly 30% of the U.S. population is living in a state where recreational cannabis is legal, and 34 of the 50 states have approved some level of medical use. Cannabis is the country’s fastest growing industry and the real estate industry is looking to Colorado professionals for guidance and best practices when working with this new and burgeoning market segment.

Even after almost a decade, the discussions around the cannabis industry remain taboo, and good information can be hard to find. When cannabis and real estate are combined, there is still confusion — even here in Colorado — because many don’t make the important connection that every retail dispensary and grow needs real estate. There are even some that will assume that because their state has only approved medical cannabis, education is not yet required. The concept that a building does not know the difference between medical and recreational cannabis, and the real estate needs are the same, is foreign.

In response to the growing need for education within the real estate community, the Greater Denver Chapter of the Institute of Real Estate Management (IREM) has developed the National Real Estate and Cannabis (NREC) Summit to be held Oct. 4 at the Gaylord of the Rockies Hotel. The one-day NREC Summit aims to teach real estate professionals from across the nation to navigate the cannabis industry in the age of expanding legalization. Attending the NREC Summit, earns those holding a Colorado Real Estate Brokers License 7-CE credits from the Colorado Division of Real Estate.

It is prudent at this point on the legalization journey that politics and personal opinions on cannabis be set aside from a real estate perspective. As this new industry began to take Colorado by storm nearly a decade ago, real estate professionals were faced with situations never encountered. For the first time, we were faced with potential clients that were forced by law to operate without a banking relationship in all-cash transactions.

Unlike the alcohol industry, cannabis was newly legal. Attorneys with decades of real estate industry experience were learning the new rules just like the rest of us — and the rules were changing daily. Until commercial growing facilities came online, few if any of us realized the power and water requirements of growing cannabis at scale. We also had to discuss the possibility of a cannabis business with other tenants, as well as live with the very real threat that what is legal by Colorado state law remains a federal offense. What could that mean to our property?

But even though we were flying the plane as we built it, we learned and continue to lead the nation. As Colorado continues to lead in more and more industries — from cannabis to cyber security to aerospace — Colorado business leaders continue to also set the pace for sharing information and providing education and best practices to colleagues nationwide. As professionals in the real estate industry, we simply cannot have enough concentrated education around protecting our owners, properties and tenants when we buy, sell, or lease to anyone that grows, sells or uses cannabis.

Daniel Murphy, CPM, is with Streamline Commercial Properties and the 2019 President Elect – IREM Greater Denver. For more information about the NREC Summit, visit the event website.

Categories: Real Estate