Implications of Marijuana on the New York and New Jersey Real Estate Markets

January 2019

A growing market trend originating on the West Coast has officially sparked parallel action across Eastern states. That trend is the legalization of Cannabis. The impact that Cannabis has made in Colorado and comparable states’ real estate markets is substantial. For this reason, proposed legalization in New Jersey, under newly elected governor Phil Murphy, has inspired similar conversation: How does this influence the real estate market at a local level since the federal government has not legalized the product?

This article will explore the implications of marijuana on the New York and New Jersey Real Estate Markets; additionally, we will use market knowledge and thorough research to provide valuable insight for landlords, and alternatively, prospective tenants.

There are multiple states, of which have previously legalized marijuana, that are already seeing strong impact on local real estate markets. The effect has been extraordinary, including rental rate premiums of up to four times traditional rates and sale price premiums of up to 20 to 40 percent. Furthermore, those in favor of legalizing, point to an estimated $300 million in annual tax revenue that the industry could potentially generate in New Jersey, while also saving millions each year in law enforcement costs. The result? More funds to be used in improving schools, public health, infrastructure and police departments. In creating a better place to live, the ultimate outcome is a major boost in the real estate market. Owners of factories, warehouses, self-storage facilities and other industrial-type facilities of which may have been vacant for some time will be in high demand as cannabis companies look for facilities able to be repurposed for the cultivation and processing of cannabis plants and related products.

This circle of life with respect to the renaissance of interest in large warehouse-like property and the foreseeable large sum of annual tax revenue is what makes marijuana so sexy to local governments. However, one important take away here is that the federal government has not legalized marijuana. In early 2018 as part of the Trump Administration’s Anti-Cannabis Campaign, Attorney General Sessions rescinded the Cole Memo, an Obama era directive which made it clearer to the states that the federal government would not seek to strictly enforce penalties against cannabis users in states that had legalized the product for recreational use. For this very reason, there are some property owners and investors who feel the federal government could come knocking on their door at any moment to ensure compliance with federal law, and therefore ruled the cannabis business too volatile to take part in at the moment. A key term here, if you’re attempting to look at legalized marijuana in a positive light, is that “at the moment” there is hesitation from some owners and investors, but the future fosters positive change. As local governments begin to see pros outweigh cons, the federal government may have no choice but to follow suite.

On the other hand, if you plan on investing in or leasing your own property to cannabis related producers now, the detailed composition of the lease is vital to the business’ success. Rarely have we seen a lease make such an impact on a tenant. But because the production is illegal at the federal level, it is imperative. It is key to stay on top of the ever-evolving laws in the cannabis industry – whether it is the regulation of environmental fumes, energy conservation, or types of cannabis being produced, the landlord can regulate these terms and, in return, the tenant can provide proof of compliance. Ultimately, look to your local government. See how they welcome this type of property use and ensure your ongoing understanding of local politics.

In conclusion, the legalization of marijuana in states previous to New Jersey has positively impacted the real estate market in a multitude of ways. With the newest revelations under Governor Phil Murphy in New Jersey, it makes the most sense for New York to follow for one main reason: tax revenue. New York residents could easily cross over to New Jersey to dispensaries and then walk right back home. If both states were to legalize recreational cannabis, the real estate market implications should fall parallel to those in every other legalized state: positive. Define your comfortability with local government policy and your understanding of the cannabis market in general before reaching a conclusion. If you’re looking for investments, local banks will be your best bet as larger banks will be in compliance with federal law. Lastly, it is crucial to take extra precaution with the composition of the lease. With increased tax revenue, less distraction for law enforcement, and an uptick in the leasing of warehouse-like properties it can be concluded that the legalization of cannabis in New Jersey will lead to a boost in local real estate markets and ultimately, the housing market in general.

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