Cannabis entrepreneurs pay premiums for real estate

Sellers, manufacturers, cultivators face “green tax” based on limited options

Cannabis shop, marijuana growing facilities

(Illustration by The Real Deal with Getty)

TRD Staff

Feb 5, 2023, 1:00 PM

Marijuana entrepreneurs are not high on the real estate industry.

Even as cannabis becomes legal in more states, the growing market is facing a “green tax” from owners and landlords, MJBizDaily reported. The premiums are not discriminating by type, affecting retailers, cultivators and manufacturers alike.

There are a number of factors forcing cannabis entrepreneurs to ante up in ways other industries often avoid. Prices are softening in more mature markets, like Colorado, but upstart markets are bearing the brunt of the green tax.

Land-use and zoning regulations are one issue. Zoning could tighten the supply and demand equation for businesses due to restrictions on how close marijuana companies can be to schools and parks. Lower supply, higher prices.

Holding periods are another problem for cannabis companies. Many states require these businesses to already have a property when applying for a license. Paying for a site someone may be unable to use for several months — if at all — can be a costly endeavor.

Landlords may also jack up prices because of the perceived risk of cannabis businesses. Some feel that if banks catch wind of landlords renting to cannabis companies, it could lead to mortgage or property deed problems, such as a demanded early loan repayment. Landlords mitigate the risk by charging more.

Cannabis companies also can’t forget that the market for marijuana around much of the country is just beginning to bud, such as in places like New York. Landlords may be seeing green before businesses even can, riding a perception that these companies can afford an upcharge.

In addition to the maturity of a market, factors that can affect the cost of real estate include location (urban versus rural) and the differences between what the businesses are looking to achieve — retailers, for instance, likely have a stronger desire to be where the most customers will be.

Some of the ways businesses can avoid the green tax according to experts include looking at properties of lower quality that need repairs or hunting for off-market properties.