Marijuana is on my mind. In recent weeks Californians voted to make recreational marijuana legal, and I can’t help but consider the impact it might have on real estate. Here are a few things I’ve been mulling over. Anything you’d add?
1) Land Value: All of a sudden land that is ripe for marijuana growing is looking pretty attractive. I’m not talking about tiny postage stamp lots in subdivisions, but rather larger-sized parcels in outlying areas. The truth is many savvy land buyers have already been making their move on large parcels in surrounding areas to Sacramento, but there are going to be more opportunities out there. I saw one listing recently where an agent said, “Good for ‘income-producing crops'” (code for pot). For further reference, here is an article discussing a “green rush” in Yolo County (people setting up marijuana businesses).
2) Home Experimentation: I expect to see more owners and renters trying to grow their own weed at home. Some will grow a few plants, but others will aim to start a business to make some money in an economy that still isn’t all that vibrant.
3) Commercial Vacancies & Rents: If California ends up being anything like Denver, which has nearly 4 million square feet of commercial space used for cannabis production, I’m guessing we’ll see more interest in industrial properties and higher rents in certain areas. Goodbye commercial vacancies. Here is an image from The Sacramento Bee (click here) to show all the locations where pot can be grown in Sacramento. Image created by Nathaniel Levine.
4) Disclosures: Talking about marijuana in contracts, listings, and appraisals isn’t anything new in real estate, but my sense is if it becomes more common to see pot growing in homes, we’ll need to hone our skills and consider what disclosure needs to look like. By the way, could the smell of a nearby pot farm need to be disclosed? As an appraiser I’m concerned with the condition of the house. There is obviously a huge difference between a massive grow operation with hundreds or thousands of plants and a home owner with a few plants. What I’m going to be looking for is anything that might make an impact on value or a health and safety issue – exposed wiring, over loaded plug-ins, poor ventilation, mold, etc… I’m not there to nark or judge by any stretch, but only figure out the value (and discuss and photograph anything that impacts value).
5) Advertising: I took my family to Portland last week to enjoy Thanksgiving, and it was amazing to see how much advertising there was for pot (because it’s legal there). Everywhere I turned Downtown there was another weed billboard, A-frame sign, or a green cross (the symbol of a dispensary). Please don’t think I’m dissing Portland because I love the city and can’t wait to go back. I’m just saying we might expect to see the same thing in California when it comes to advertising. Can signs impact the feel of a city or neighborhood? Will there be more signs in certain areas than others? Time will tell.
6) Marijuana Branding: I’m waiting for more in the real estate community to go public with their MJ branding. Last month a Sacramento law firm announced its marijuana practice. Ironically one of the partners has the last name Kronick, which is oh so close to Chronic. Anyway, there is still available shelf space for weed branding such as “Marijuana Realtor”, “Cheebah Appraiser”, and “Mary Jane Lender.” I’m kidding. Sort of.
7) Loans on “Grow” Properties: Some lenders don’t want to lend on properties that are being used for marijuana growth (keep in mind this likely doesn’t mean just a few plants). Here is some direction from a certain bank I sometimes work for when it comes to this issue. This unnamed bank sent out a message to its appraisers regarding grow houses:
####### Bank is currently unable to lend on any property with marijuana grow operations. The marijuana industry is state regulated and ####### Bank is federally regulated. Therefore, we are not in a position to lend to borrowers with income from that source nor can we lend on properties with active marijuana grow rooms or facilities.
If you encounter a property with an active marijuana grow operation, please take at least one descriptive photo, complete your inspection of the property then cease work on the file and immediately contact your ####### Bank Appraisal Coordinator. Please do not attempt to quote ####### Bank lending policy. We will take care of that and you will, of course, be compensated for the time you’ve already invested in the appraisal.
I hope that was interesting or helpful.
Questions: Anything to add? Did I miss something? What impact do you think the legalization of marijuana might have on real estate? If you are located in a state where marijuana has been legal, what advice do you have for Sacramento? I’d love to hear your take.
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NAR rolling out the definitive real estate certification?…. “Real Estate Dude?”
Too funny Jeff. I guess we have to ask what a “Green” certification really means now too.
I was actually going to suggest you write an article about this. Impressed you put this forward since nobody else is locally from what I’ve seen.
Disclaimer: I am a libertarian and could care less what people do privately, but this has become an issue that greatly affects the quality of life and real estate valuations in our rural communities.
I’ll premise this by saying that my family moved out of an otherwise gorgeous rural mountainous area in the Sac foothills because the cannabis cultivation got so out of control and directly impacted our family’s quality of life. Trimmigrants were committing crimes, homelessness exploded, the constant skunk smell during October was nauseating, and the environment was being decimated there. Not to mention you couldn’t walk in the national forest or many other areas because there were hispanics with rifles in the trees guarding cartel grows from Aug-Halloween. Ask anyone who lives in Nevada or El Dorado Co. if that is true if you don’t believe me. Our family never went hiking with our dogs during grow season because it was too dangerous.
The trend in that area was nice family-oriented (typically more conservative politically) people were either aging and dying or moving on and then grow–centric home buyers coming from out of the area (so cal or SF normally). Almost the whole neighborhood changed hands and there was a total demographic change during the time we lived there.
In my opinion the areas that have become cannabis friendly (the Nevada, Calaveras Counties etc.) will experience major real estate valuation declines for a multitude of reasons over the longterm. They have become totally cannabis-centric and have no other local economies anymore. The people with money don’t want to live there and are leaving while 15 trimmigrtants and crop dogs move into a place and the trailers roll in etc. Sorry, but if this sounds harsh but it’s true. Crime has spiked in these areas, I’ve studied the FBI statistics. (look at violent crime in beautiful Nevada City per capita)
That being said, there is a green rush going on. It is temporary though. Basic supply and demand at work. As more and more people in CA cultivate cannabis the market will crater. It has already happened in other places. Plus the move is towards indoor cultivation for potency and multiple harvests in a year. So much of this rural property where growers are paying bills withl buds will go back to the bank I am guessing. Especially once Marlboro rolls out Marlboro Greens (when the give year moratorium on big cultivation is up in CA.)
It is a complicated topic but not only will cultivation continue to devastate neighborhoods it will cause a flight of money to more family friendly places. There may be a temporary spike in rural valuations (seeing that now–Agree Ryan) as VC firms and speculators try and control rural parcels.
This will come and go as prices come down and it is no longer profitable to grow. If heirloom tomatoes were $1,500 a pound then everyone would grow tomatoes.
Watch for rural land prices to tank after mass production in CA hits it stride. I’d guess 1-3 properties in the Sierra Nevada foothills is growing cannabis right now and are paying bills with that money. As longs as that is the case we will keep attracting the dirtbags to our rural areas and the monied people will keep leaving for Texas, Arizona and Idaho. Honestly, who wants to spend money on a beautiful rural home only to share a forest with armed gunmen. My family fled Colombia for similar reasons. No thanks.
I’m sure some people will be offended by my post but everything I said is true about the reality of what is going on. Ask any deputy that works the foothills and they will confirm everything I said above. Sometimes the truth is hard to accept.
Thank you sincerely Mr. Miyagi. I really appreciate your comment. Thank you for sharing your story and taking the time to scratch that out. I have heard of grows in the deep woods and I have had friends encounter men with guns (or at least they hear the gun fired and know it’s time to turn around). I’m sorry to hear you guys moved away, though I can understand why too.
This is a very big issue and it needs to be handled with care. I wonder if California is ready and I wonder if homework has been done with other places where pot was legalized (Colorado, Oregon, etc…).
Maybe it’s best to try to get all the grow operations to go industrial. That way the state will get more tax dollars, but then we can reclaim the forests for people who actually want to enjoy them.
On a related note, a few years down the road when we start seeing “How to Become a Cannabis Grower” classes, I guess we’ll know the market is over (much like we see with “How to Flip Houses” courses today).
Thanks again.
Great post. I am curious to see how this all works out for our economy and our community.
Thanks Barb. Me too. We shall see… You are right though that this is about the economy AND the community. If we end up being anything like Denver, we are going to see both positive and negative impacts on each.
Thank you for the article Ryan. It is interesting to hear about the rush for rural land to grow pot. Here in Portland, I guess it is too cold and electricity is too cheap, most of the pot is grown indoors.
Thanks Gary. It’s interesting how geography and even electricity can impact a market for cultivating MJ – or so many other factors.
When visiting Seattle & Portland last week, I met a guy on the ferry to Bremerton who has a grow operation. I’m not sure why he told me as much as he did, but he has an outdoor operation in the forest in Oregon (under 100 plants). I was surprised to hear that because of the weather. He did say it is very seasonal though because one could not grow year round.
It was great to finally meet you last week. I’m sure our paths will cross again at some point too.
Ryan, we talked about this earlier in the year and so you know a little bit about what we have experienced in Denver. There is definitely a marijuana boom coming to California, because essentially you’ve freed people (and the market) to create as much weed as they want which has a significant short term financial impact. We also have a massive black market here in Denver – taxing and regulating it were concepts that were oversold to voters – and four years later you’re starting to see the dramatic effects of a huge surge in homelessness, indigence and occupation by thugs of the 16th Street Mall, which used be an iconic tourist area similar to the K Street Mall in Sacramento and is now to be avoided at all costs, especially after dark. We also have a new class of millionaires here in Colorado – the Marijuana-prenuers – who are cashing in big time. Great era for commercial real estate, new car dealers and the handgun market. You’ve got three to four years of massive growth (figuratively and literally) coming to your state, but I’m really curious to see how Californians view this decision when your market (and culture) is saturated with legal weed five years down the road.
Thank you Dale. I was really hoping you would comment. Your perspective is unique too since you know Sacramento well and you are in Denver. Legalizing weed is a big deal for the reasons you mentioned above, and I really hope California is ready for all the changes that are going to be coming our way. I imagine we are going to get used to hearing that term here too, “Marijuana-prenuers”. If you have any pointed advice for real estate professionals when it comes to the coming weed explosion, you are always welcome to share your take. Thanks Dale.
Ryan, speaking strictly in terms of real estate and finance… home values in the worst areas of town have essentially doubled in four years. Because federal banking laws prohibit deposits from the MJ industry, our city is flush with cash in the hands of people who are looking for a place to park it. And cheap real estate works really well for them. I know of one alleged Denver MJ-prenuer who has purchased over 150 homes with cash since 2012 – all entry level rental homes worth about $45 million. I would think you’ll see similar trends in CA.
That’s interesting to hear Dale. This is a good reminder to always ask what is driving the market. Who are the buyers? What is motivating them to buy? In terms of value I wonder how your area’s appreciation rates compare to other areas. We have also seen substantial increases, though not doubling in most cases.
150 homes is no joke and that is a huge task to manage that many homes. I hope this person has a property manager too. The irony here is parking cash elsewhere can lead to some negative consequences. In the case of real estate if there was a market where growers gutted inventory, that could cause prices to increase for everyone. I think of Blackstone’s profound influence a few years back in Sacramento or Chinese buyers laying down serious cash in Orange County right now.
Interesting insight since you have the rare perspective of both places.
If you happen to know, can I ask you if outdoor grows in rural CO areas were a huge presence prior to legalization? I would guess that there was not nearly the prevalence of huge illicit grows in CO as there has been traditionally in Northern CA.
I cannot imagine what will happen to our rural areas moving forward as many of them have already been decimated already by the green rush. I imagine it will be twice as impacted as CO since I believe our starting point is already more cannabis-centric than CO was, but I welcome your thoughts on that since I have never lived in CO and don’t have the perspective you do. I just know the CA environment.
Ryan, the most poignant suggestion I’ve heard on the topic was your suggestion about limiting it to industrial type spaces. That is exactly what needs to be done. It is unfair to hold neighborhoods (albeit rural) hostage to the cannabis industry when some of us want to raise children in safe areas, walk in the woods and enjoy nature, and be a bit removed from the urban problems that plague major metros. This is what many of us have struggled to escape and now the places we have escaped to are saturated with these same urban issues.
IE. There are more homeless per capita in Grass Valley than SF according to one study I read about 6 months ago. Also with disastorous prop 47 many criminals are back on the streets and a lot of them settle in these smaller rural areas (as long as they are close enough to Auburn to meet their parole officer.)
This all impacts real estate values because crime and blight are obviously leading drivers when determining the quality of life in an area and where people want to deploy capital for the biggest investment decisions they often make in real estate purchases.
We took our money and ran, and so did nearly all of our neighbors from the once nice foothills town we were in– some of which had lived there for 20 plus years! When 2nd graders getting dropped off at school all smell like marijuana because their parents were trimming buds or hot boxing the car, things have gone too far. That and guaranteed armed home invasions during grow seasons make someone think twice about buying a nice mountain home.
Thanks again Ryan for being savvy enough to recognize this factor and write a post on it. Coming from major pot country myself, it is undeniably contributing to the massive decline of our communities where cultivation is permitted and or encouraged.
I contend that the roughly half a million (last number I read) people leaving CA each year and are those with money leaving for more ‘conservative’ states and taking their real estate money with them. My guess is that the in-migration is largely immigrants (nothing against them) or low-income individuals (nothing against them either.) I don’t see how this trend will continue with cannabis exploding. CA will continue to be its own nanny state with businesses and retirees leaving.
I’ve got to believe homelessness, crime, and social handouts be the continued trend in CA. Enclaves of nice neighborhoods getting more isolated and more scarce. The only thing that may save CA in my opinion is a collapse in cannabis prices from supply pile-ups. I think that is inevitable given how many people grow and wish to grow.
It is no coincidence that nearly every group of friends my wife and I have, many of whom are highly successful in business or real estate, want to leave California. It is the last thing many of us want to do because our family friends and businesses are here. But it is our potato famine. It is getting that bad and I don’t see it getting better I’m afraid.
Sorry for the LONG rambling post, and I totally get it if nobody reads it! haha
Thanks again Mr. Miyagi. I appreciate your thoughts and your honesty. I did read the long comment and I’m sure others will too. What makes a blog post is the comments. This one is definitely getting good with varying perspectives and insight. I hope it continues.
I know many cities passed MJ ordinances prior to Prop 64 so they could retain some local control of cannabis cultivation. Some cities have banned outdoor or commercial growth altogether. It’s going to be interesting to see local governments (cities and counties) grapple with what it looks like to exist in this new era. What do residents want? How much tax revenue can be generated with the cannabis industry? Is there any impact to quality of life? Are there safety concerns?….
Great post Ryan. As I was reading it my mind was mulling over the scenario you outlined in #7. This will make many potential pot growers think twice if they want to get a loan that will be subject to federal regulations. Sounds like you are in for some interesting times.
Thanks so much Tom. We’re really going to need some clarity from lenders. This one bank above has a staunch stance, but do they all? I’d love to have some loan officers pitch in some thoughts if they’re reading.
On a side note, it seems like many folks don’t want to talk about marijuana. Maybe it feels too tabboo or like a topic that would isolate people too much. Let’s remember though talking about pot isn’t the same thing as being a toker or advocating for it. Let’s engage with this topic because it’s a factor in real estate and it’s not going away. Let’s keep the conversation going.
Great article Ryan. You’re dead on about the increase in demand for industrial property and warehouse space for “green activities.”
I had a client express interest in leasing 10,000 sq ft of warehouse space from someone who was prop 64 & 215 friendly, and I asked the guy in our office who specializes in commercial properties if he knew of anything, and he said I was the 5th person to ask him about this since the end of the election!
I think the early movers probably already snatched up most of the available property, and my commercial agent said it would be much easier to find space in West Sacramento than in the city limits, and if you purchase a building it’s easier to grow there because you don’t have to get the approval of the owner leasing it.
As a Realtor, I wonder what type of effect it will have when selling a home that is currently growing several plants, and how buyers will perceive the value of the home because of it. It might have a sort of “tattoo effect” where people make judgments about the sellers or the condition of the home simply because they are growing there. People today are still discriminated against for having tattoos, and I see the same thing happening to sellers with small growing operations in place at home.
Thank you Wes. I appreciate hearing your take. That’s really interesting to hear the commercial agent’s response. Very telling. By the way, I watched a documentary on Netflix a while back called High Profits (I think), and it was interesting to follow one guy’s MJ business in Colorado.
I remember in the 80s when men having earrings was a big deal. Now it’s commonplace (at least in California). I don’t have any because I’m not cool like that, but I would say it’s now so common that it’s not seen as taboo (I do have a tattoo though because I got swept up in the tribal tattoo wave that came in the late 90s). Maybe this isn’t a perfect example, but I would guess we’ll see something similar happen with marijuana where people just get used to seeing it and talking about it. It’s hard to think a few plants is going to be a big deal for buyers, though if there is a stench or evidence of electrical damage (or moisture/mold) in any way on the inside of the house, that could be an issue. I do think quite a few buyers are not keen to the idea of indoor growth still for many reasons. From a real estate perspective I would recommend outdoor growth instead of indoor growth to minimize impact to buyers. But then there’s neighbors and the skunky smell….
We’ll see how this unfolds.
You hit the nail on the head Ryan, We’ve seen a bunch land going up in price up in Auburn as cash producing crops. Even in areas in Rancho though where there’s lots of industrial zoning, I can see tons of commercial space getting outfitted to be “green”. I also have to laugh at all the new “green certifications” that will be coming out in the next few years haha.
Thanks Liz. It’s good to hear first-hand what you are seeing. Funny about the certifications. City councils are really going to have to think carefully about what they do and allow. If an area gets too many industrial weed complexes, it may develop a nickname, which could be good or bad for the area.
From a value standpoint this is fascinating because I’m always considering two questions: What is value doing? And why is it doing it? (or what is moving value?).