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In Older Markets, Landlords Are Warming up To Cannabis Tenants, But A Premium Still Applies!

The location of a cannabis business, whether it is a grower, processor, or retailer, is crucial to its success.

It’s important for growers and manufacturers to be close to the markets they supply, and for shops to be easy to reach for customers. In addition to the high price tag, the stringent zoning regulations imposed by local governments on cannabis businesses must be taken into account by every company that works with plants.

The cannabis industry is just like any other. Location, location, location,” said Ryan George, CEO of 420 Property in Sacramento, California, a real estate marketplace for marijuana and hemp.

Times Are A-Changin’

The cannabis industry’s real estate market has changed drastically during the past few years.

The premium, or so-called “green tax,” that cannabis businesses must pay for commercial real estate is decreasing, experts say.

Landlords in older markets warm up to marijuana tenants, but premium still applies

 

In 2018, 2019, and 2020, premiums were over the roof. They persist, however in diminished form. Drew Mathews, CEO of San Diego’s Green Life Business Group, a marijuana and hemp real estate marketplace, noted that “the real estate premiums have come down considerably.” “There is definitely a premium when a new state becomes recreational, but for now it really doesn’t go over two times total income.”

Eye on The Future

The value of cannabis-related businesses and properties has also hit an “all-time low,” according to Mathews.

When federal legalization occurs, which he anticipates will be in four or five years, he suggested that entrepreneurs buy four or five stores with the intention of selling them to larger firms.

Prices are lower, so “if you’re a buyer, now is the time to buy,” Mathews advised. But trying to recoup your investment in the next two decades would be foolish. Within the first six months of federal legalization, only the astute sellers will make out like bandits.

According to Mathews, his office is already fielding inquiries from huge cannabis companies inquiring for real estate transaction data; these companies are looking primarily to acquire chains of four or five outlets to include in their portfolios.

Name on The Deed

As a result of these factors, more and more cannabis companies are choosing to acquire rather than rent office space. Because so many landlords have policies that make it difficult or impossible for cannabis businesses to operate.

According to Matt Christopherson, a senior research analyst at the NAR in Chicago, “allowing businesses to manage their property so they may use the property as they see appropriate” is a major benefit of buying.

However, landlords’ negative attitudes toward cannabis have been reluctant to change.

For instance, a 2021 NAR survey found that just one-third of landlords in medical-only marijuana markets would accept cash payments for rent due to concerns about being associated with a federally illegal business.

Almost three-quarters of landlords in states where medical and recreational marijuana are legal are open to the idea of receiving rent in cash.

Christopherson remarked that landlords would be more receptive to accepting cash payments the more and the longer marijuana was allowed.

Without a doubt, today’s real estate market presents a number of obstacles for cannabis startups. The most significant of these are discussed here.

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Mohit Sharma

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