Real Estate Study
OKLAHOMA CITY – How, if at all, has marijuana legalization affected the real estate market?
According to the National Association of Realtors, “The recent string of state-level marijuana legalization continues to impact commercial property demand and residential housing decisions throughout the United States.” The NAR study “Marijuana and Real Estate: A Budding Issue,” examines how marijuana is grown, harvested, stored, sold and consumed within states where the product is legal. Because each law and the duration of time in which the product has been legal varies by state, the study is summarized by legal for medical use, legal for both medical and recreational use after 2016, and legal for medical and recreational use before 2016.
Oklahomans legalized medical marijuana on June 26, 2018, when they voted to approve State Question 788, a constitutional amendment. State Question 807 – which would legalize recreational marijuana for adults 21 and older, and would impose a tax of 15% (instead of the current 7%) on marijuana sales – is under challenge before the
state Supreme Court; oral arguments about the constitutionality of the initiative are scheduled before the state’s high court on Feb. 26. “As more states legalize marijuana, the real estate market will progressively have to adjust,” said Dr. Jessica Lautz, vice president of demographics and behavioral insights for NAR. “From property owners, to manufacturers, to those who simply want to engage for leisure – it all touches real estate in some form.”
RESIDENTIAL PROPERTY
Between 9% and 23% of members in states where marijuana is legal to some extent believe the residential inventory was tight for multiple reasons, including all-cash purchases from the marijuana industry. The majority of respondents said homeowner associations have restrictions against smoking and growing in-home or common areas. Some 2% to 4% report homeowner associations did allow growing or smoking in-home or common areas.
Approximately half of members in states where medical marijuana is legal had no issues leasing a property after the growth or use of marijuana in a property. The most common issue was odor. When a tenant is allowed to either grow or smoke marijuana in a rental property, it was most common for the tenant to pay the utility costs. When tenants were allowed to grow marijuana in their rental units, 5% of those in states with legal medical marijuana said self-contained machine/boxes were required. In states where medical marijuana is legal, 6% of NAR members who sold a grow house used a specialized company for the title. However, 11% of members who had sold a grow house in states where medical marijuana is legal were not able to find a title company for the sale.
One-quarter or fewer of members in states where only medical marijuana is legal had seen addendums added to leases which restrict growing on properties. In states where only prescription marijuana is legal, more than four-fifths of NAR members surveyed had not seen a change in residential property values near dispensaries.
COMMERCIAL REAL ESTATE
NAR surveyed its membership regarding their interactions with marijuana and the real estate sector in states where the product is permissible. The study finds that commercial practitioners are facing an increased demand for land, warehouses and storefronts that are intended for marijuana. “When the business of marijuana is discussed, some have a tendency to focus on only the buyers and sellers of the product,” Lautz said. “However, these numbers show that marijuana has been a boon to commercial real estate.”
In states such as Oklahoma where prescription marijuana use is legal, 19% of commercial members had seen an increased demand in warehouses, 18% in storefronts, and 15% in land. Thirteen to 22% of members had seen an increase, and 5% to 18% had seen a decrease, in commercial property values near dispensaries. Nearly one-fifth of those in these states had seen an increase, and 4% to 14% had seen a decrease, in commercial property values near growing lands.
About one-fifth of NAR members in states where only medical marijuana is legal noted some tenants do not want to be near a dispensary. In states where only prescription marijuana is legal, 40 percent of commercial members cited no change in crime and just 2% reported an increase. In states where medical marijuana is permissible, just 12% of commercial members were leasing to marijuana-related businesses.
Nearly two-thirds of commercial members in states where medical marijuana is legal reported that no additional addendums pertaining to the growing of marijuana were added to leases. One-tenth of commercial members in medical marijuana states did have lease addendums.
Two-thirds of commercial members in states where medical marijuana is legal reported that no additional addendums were added to leases regard- ing the sale of marijuana. One-tenth of commercial members in medical marijuana states did have lease addendums. The most frequently cited concern of commercial members was the smell when leasing to marijuana-related businesses, followed by theft of cash on property, moisture issues and fire hazards.
CASH PAYMENT FOR RENT?
As marijuana is an all-cash business, earnings from those in the business were cash proceeds. Just under one-fifth of residential landlords were unwilling to take cash for rent. In states where prescription marijuana is legal, 42% would take cash for rent. Approximately one-quarter of commercial landlords in states where only medical marijuana is legal were unwilling to take cash at all for rent.
METHODOLOGY
The 2019 Marijuana and Real Estate survey was sent through email in September 2019 to a random sample of 76,000 NAR members who practice residential real estate and 76,000 NAR members who practice commercial real estate. The survey received 3,062 re- sponses from residential members and 611 responses from commercial members for an overall response rate of 2.4%