The Cannabis Real Estate Boom: Sustainable Growth Or Bubble?

Real estate bubbles occur when due to excessive confidence about future rental profits, and purchasing with speculative motives, prices of commercial properties reach a point that cannot be sustained and eventually crash. 

The legalization of marijuana for medicinal and recreational purposes has created a high demand for commercial real estate and cities that permit retail dispensaries have experienced an increase in home values compared to those where marijuana is illegal.

The commercial real estate sector in the U.S. has industrial-zoned properties worth $1.5 trillion, with estimates suggesting that the cannabis industry's economic impact will create a Total Addressable Market of $50 to $75 billion in commercial real estate, accounting for roughly 0.5% of industrial real estate.

However, bubbles can result in a substantial reduction in property values, bankruptcies, and loss of jobs when they burst.

Are you looking for intelligent insertion in cannabis real estate, avoiding bubbles? We have the contacts and expertise to help you find the experts to go to for advice. After the overwhelming success of last year's 4/20 business event, the Benzinga Cannabis Capital Conference is returning to Miami beach April 11-12, 2023 with events taking place simultaneously on two stages at the historic Fontainebleau Hotel.

Rising Demand For Cannabis Real Estate

According to the National Association of Realtors (NAR), states where recreational and medical marijuana has been legal for over three years, have seen a rise in demand for commercial properties.

There was an increase in warehouse demand (42%), storefront demand (27%), and land demand (21%). In States where recreational and medical cannabis was legalized, around 32% have established commercial lease addendums to manage growth, while 30% have included lease addendums for marijuana sales.

Prospect

Real estate sales in 2023 are predicted to decline due to the negative effects of inflation and increasing mortgage rates. Nevertheless, landlords are countering these effects by raising rents in real time.

It can be expended that cannabis real estate values rise because building costs are increasing, leading to a shortage of supply.

Acquiring and financing cannabis real estate could be advantageous because rental rates have risen faster than mortgage rates and expenses. However, it is not clear whether cap rates will go up due to inflation or stay low because of cannabis real estate's popularity as an investment choice.

Avoid Red Flags

Protecting your cannabis company from a commercial real estate bubble includes monitoring the market, being prepared to sell but not panicking, avoiding speculation, and being cautious with loans.

To reduce risks and provide growth opportunities and passive income, it may be helpful for cannabis business owners to diversify their real estate holdings. However, they should consider factors such as security, zoning regulations, municipal political tides, and ongoing costs when selecting properties.

Red flags include prolonged periods of rising property prices, a surge in defaults due to increasing interest rates, an oversupply of office or retail space from too many new buildings, an increase in speculative loans, and speculation about future rental income.

Join us in April at the Benzinga Cannabis Capital Conference and stay at Miami Beach’s historic Fontainebleau Hotel. Don't miss out on a chance to meet and talk to experts with worldly advice on investing in cannabis real estate. Are you ready?

Buy your tickets HERE before prices go up.

Image Credits: Yarygin and Alena Ohneva on Shutterstock.