How will the legalization of marijuana affect the real estate market?

By FCT

On April 13, 2017, the federal Cannabis Act, which legalizes and regulates the recreational use of cannabis (also known as marijuana or weed) in Canada, was introduced. The government proposed to legalize marijuana in the summer of 2018, which sparked a lot of discussion on how it will impact the real estate market.

We’ve gathered some of the top predictions about the Canadian real estate market after marijuana is legalized.

1. Certain neighbourhoods may be less desirable

Canadian Real Estate Wealth cited a survey that found “47% of the respondents said that even a legal amount of marijuana grown in a home would reduce their desire to buy the property.” 39% of those polled believe that the use of it in a home decreases a property’s value. Additionally, 32% think the value of a home decreases when it is located near a dispensary. Once marijuana is legalized and more dispensaries are established, the value of some neighbourhoods may be negatively impacted if Canadians don’t want to own a home near these businesses.

2. Marijuana companies may have a hard time getting financing

Marijuana companies are preparing to enter the Canadian marketplace, and according to commercial mortgage broker, Harry Tyson, they could be facing issues. Tyson predicts that although there is a lot of money in the industry, some lenders may be hesitant to hurt their reputation and fund these facilities even after its legalized. And the lenders that would be willing to fund them will face a security risk because there’s concern people may want to steal what’s inside or damage the building.

Funding issues aside, marijuana companies may also have a hard time finding buildings that don’t have tenants, which is ideal for a production facility. However, in the end, real estate prices could likely be the deciding factor for where these facilities are located as companies look for cheap land to set up on.

3. New opportunity and potential price increases

A recent study called “Fertile Ground for Canada’s Marijuana Industry” from Jones Lang LaSalle (JLL) reported that the legalization of marijuana “is expected to drive up the cost of commercial real estate in all major provinces across the nation.” From rental space to warehouse facilities, there are lots of opportunities for large and small players in the commercial sector. Currently, medical marijuana is a multi-billion dollar industry that will become more profitable when the drug becomes more mainstream. JLL reports that marijuana companies are preparing for this influx in popularity by leasing more space, and that there’s “a pressing need for more large-scale commercial properties in Canada capable of housing millions of dollars’ worth of plants.” As demand continues to increase for these spaces, rental prices may rise further. JLL concludes that they “expect the spillover to touch the retail and office sectors” and that “the opportunity with cannabis [in the commercial real estate sector] is unprecedented.”

Time will tell how the legalization of marijuana will impact the real estate market. What are your predictions?

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