California will soon be another state legalizing the recreational use of marijuana. No one seems to know the full effects of the new law and to many of us feels like one huge quasi-experiment on the population of the state.
Let’s take a look at the new law and the current and possible effects it may have on real estate.
Based on state estimates and what occurred in other states that legalized marijuana it is projected to be a $5 billion industry.
Cannabis is a cash industry where real estate is purchased with cash because marijuana businesses are unable to securing financing being an illegal drug at the federal level. Additionally, most landlords see rent paid in cash.
Many cities and counties who welcome growing facilities, and dispensaries have seen a dramatic increase in property values and rents.
In 2015, we saw legislature pass the Medical Cannabis Regulation and Safety Act (MCRSA), which created a regulatory process for the cultivation, sale and use of medical marijuana.
In 2016, voters passed Proposition 64 legalizing the recreational use of marijuana both commercially and personally. The proposition includes regulations regarding the cultivation, sale and use of marijuana, and gives total control to municipalities.
The state anticipates the regulatory process will be ready to implement in January, 2018 with several cities and counties already taking applications for businesses.
There will be no need for the MCRSA regulatory process, and the need for medical marijuana non-profit collectives, cooperatives and mutual benefit corporations and will be phased out by 2019.
Marijuana is still on the list of Schedule 1 Illegal Substances under federal DEA (Drug Enforcement Agency) Controlled Substances Act. The DEA could raid a growing facility or dispensary and confiscate all assets including the leased or owned real estate.
Though the potential for a raid exists, it is unlikely to occur anytime soon. A little-known rider to a 2014 spending bill passed by Congress and renewed annually does not allow the use of any federal funds in the prosecution of marijuana businesses or individuals.
Proposition 64 also gives rights to a landlord to prohibit or control activities on private property.
Even though an individual can now possess, use and grow up to six plants on private property a landlord can say “no.” This also applies to someone using marijuana for medical-related issues.
Landlords who wish to limit the recreational use of marijuana can state this in a lease and could also demand to see a medical marijuana card if choosing to allow only medical use.
The new law opens the door to additional disclosure requirements for the sale of residential real estate. Disclosure also includes properties that have had growing in the past or present.
Next-door neighbors cultivating, growing and using should be disclosed as well, being that it is against the law at a federal level.
Many of our societal norms have been turned upside-down with the legalization of marijuana. We have yet to understand how this “new normal” will affect us.
The current real estate upset created by the demand and lack of available industrial space and storefronts may soon subside. How the acceptance of a mind-altering substance will touch our lives is yet to be seen.