Legalized Marijuana: A New Meaning to ‘Going Green’ in Real Estate

Posted on Apr 24 2015 - 3:12pm by Nick Caruso
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marijuanaAs the market continues on its road to recovery, many obstacles are falling by the wayside making it easier than recent years to find the right homes for the right buyers. Mortgage rates are still low and affordable, the unemployment rate has dropped, and in many areas across the country, inventory has more or less stabilized. These factors are always some of the usual suspects that have affected the lives of agents, consumers and the industry throughout the years, but are now facilitating more and more business for real estate professionals as the year progresses. Now, another offshoot lurks on the horizon, one that will almost definitely shake up the real estate game and demand some much needed clarity to the perpetual arising questions that are already flooding in. How will the legalization of marijuana affect the real estate industry?

Currently, 23 states and the District of Columbia have laws legalizing marijuana in at least some form. For most states, the drug is limited to medicinal use. Four states--Alaska, Washington, Oregon and Colorado--have legalized the plant for recreational purposes, and some states, like Georgia, which is not included in these numbers, allow for the possession of cannabis oil if a patient suffers from certain medical illnesses.

Here’s where things get murky: While many states have chosen to legalize, marijuana laws vary on a state-by-state basis. Furthermore, according to the federal government, marijuana is still a major no-no. However, with more than half of the nation’s one million REALTORS® residing in jurisdictions with laws that allow medical or recreational marijuana, according to the National Association of REALTORS®, understanding the laws of a particular state is critical for landlords, property managers and real estate professionals, says Megan Booth, senior policy analyst for NAR®.

“It’s really important for real estate professionals to be aware of the laws and what it can mean in different circumstances,” says Booth. “If you lease property, there’s a lot of things to think about. Do you allow smoking already? Are you going to at all? If there’s no smoking, does that apply to marijuana?”

While there are obvious implications for residential and commercial property managers who have to deal with landlord-tenant issues daily, the legalization of marijuana also presents challenges for community and condo associations, in addition to federally assisted rental housing, which must also debate these very same questions.

“In most of the country, you can’t grow marijuana outside. Most of the time it has to be in a really controlled area, with lots of water and light,” says Booth. “If you have an apartment building, you probably don’t want residents growing in their unit. For one, it will raise utilities, but it’s also ripe for mold. So you want to think about all the considerations around that.”

That said, landlords in legalized states don’t have to permit marijuana, since it’s still prohibited under federal law. A tenant may still ask for accommodation, giving landlords a few options. They can choose to release the tenant from the lease without any penalties, or the landlord could accommodate the tenant and ask them to install fans or minimize odor and other disturbances at the tenant’s expense. He or she could require new and existing tenants to sign an addendum to their leases prohibiting the use of marijuana. Booth recommends that consumers read the rules or lease thoroughly before signing new contracts if smoking or growing the drug is their intent.

For real estate agents, having a deep understanding of the law is imperative in order to properly serve buyers looking to buy in legalized states. Many sellers are promoting their marijuana-friendly properties as such, and some agents are trying to work this newfound group of cannabis-smoking buyers, promoting that they can be the agent to help you find your grow site or retail space. Essentially, the legalization of marijuana has almost instantly created a new niche market for the real estate industry.

And just like property hunters in any other state, these buyers’ searches frequently begin online using new marijuana-friendly MLS sites that have started sprouting up as quickly as the plant itself. On the commercial side of the coin, sites like 420MLS, PotProp and HerbFront all offer services allowing those looking to break into the medical mjmarijuana biz the chance to find real estate with the proper zoning for marijuana cultivation and sales. On 420MLS (which stands for “marijuana listing service,” by the way), real estate professionals advertise the sale of commercial space for marijuana-related businesses like grow houses and dispensaries. But just like on the consumer side of the issue, there are some serious factors that must be considered, such as the potential impact on neighbors nearby, smoke odors, mold from high humidity levels needed for growing, and even the case of explosions during the manufacturing of related products, in particular, cannabis oils. Again, it’s complicated.

Derek Peterson, the CEO of Terra Tech, a company focused on local farming and medical cannabis, agrees that being well versed in the law can make all the difference when trying to break into this alternative industry.

“Some of the most significant hurdles surrounding acquiring marijuana business licenses involves having the perfect real estate that will not only meet the regulatory requirements, but is also easily accessible to patients and consumers,” says Peterson, whose company is currently developing acres of hydroponic greenhouses throughout the country, including Nevada, and soon, New York.

“There is a lot of money to be made in this industry and the real estate sector is no exception. Most agents and professionals we’ve worked with have been excited to hear about our line of business, and almost none have chosen not to work with us,” he says. “We also receive regular calls from agents seeking to assist us. Based on our experiences, people are excited about working with and near this product.”

With the ball quickly rolling for legal grow houses and dispensaries in my almost half of the country, concerns regarding the stigma of the drug may still exist for many homeowners looking to buy in legalized states. Some view buying a home near a dispensary as a negative thing, and fear it may devalue their home property to be around recreational, or even medical, dispensaries. The jury is still out whether these stigmas will actually affect consumer home buying decisions going forward, however, according to the Pew Research Center, a slim majority is now actually in favor or legal marijuana. In 1969, only 12 percent of Americans said the use of the drug should be legal; in 2014, that number reached 53 percent. It seems the times they are a’changin’.

In the meantime, consumers wanting to avoid marijuana should search for mold problems in a home suspected to be a former grow house. Sometimes odd wiring systems or strange ventilation systems could be tip-offs that the home was used to grow the plant in the past. Thoroughly conduct research on a home before you buy, and as always, work with a trusted REALTOR® to effectively work through whatever issues or concerns you have as they arise.

As for marijuana’s continued effect on the real estate industry at large – it’s almost too early to tell. We’re left to merely speculate about the future of marijuana and how its inevitable ripple effect will impact real estate. Says Booth: “Whatever happens with the federal government could change things. You never know what the next administration will do.”

Peterson is optimistic. “As the industry matures and states continue to adopt more favorable laws toward cannabis, we’ll see a revitalization of many industrial areas, opportunities for commercial real estate, and booms in certain residential real estate markets,” he says.

Although NAR® has no official stance on the topic, Booth strongly stresses that knowledge is power.

“We’re trying to provide education to our members. We’re making sure people think about all the issues. Know what it means for your properties, businesses and other real estate, and as it plays out, you may need to tweak your property management depending on how things change.”

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