Effects of marijuana

By: J. David Chapman/June 14, 2018

I studied real estate and construction management at Denver University a few years before the legalization of marijuana in Colorado. I have been back several times since the legalization and have spent hours visiting with my former professors who are tasked with studying the impact of the legalization on real estate.

Marijuana has been legalized in nine states and Washington, D.C., and in 29 states for medical purposes. Marijuana is illegal under federal law even in states that legalize the drug. Marijuana is illegal in Oklahoma; however, Oklahoma is considering legalizing it for medical uses. I’m a real estate academic and thankfully I am not tasked with determining the social benefits or tribulations of marijuana use and its legalization. I am however, interested in the effect the legalization, even if only for medical use, can have on commercial and residential real estate.

I received a call last week from an out-of-state company looking for a marijuana-growing location to lease. And so it begins, and so does the concern from landlords all over the state considering the opportunities and ramifications of leasing to tenants growing and using marijuana in our homes and buildings.

In Denver, there are 589 marijuana-growing facilities. These properties occupy over 4.2 million square feet of commercial space, which equates to over 4 percent of total industrial space. While 4 percent is not a huge percentage of the total industrial space, it is estimated that it consumes about 40 percent of the Class C and D properties. These properties are the least desirable and lower industrial tier as far as quality. They tend to have low ceiling heights, challenging deck heights, and limited use in today’s efficient warehousing operations. Turns out, marijuana is a unique industrial use and actually benefits from low ceiling heights and users will pay more than double to lease suitable industrial spaces than conventional users will pay.

Retail brokers in states that have legalized marijuana, even only medical-use states, have seen similar opportunities. There are now 169 recreational and 195 medical dispensaries for a total of 364 cannabis stores in Denver. For comparison, Denver has 80 Starbucks and 31 McDonald’s, for a total of 111 of those stores. I guess we can say legalizing marijuana is having a budding impact on real estate.

J. David Chapman is an associate professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).