Commercial Real Estate is a Safe Harbor for Legal Marijuana Industry

Commercial Real Estate is a Safe Harbor for Legal Marijuana Industry

Florida’s Right to Medical Marijuana Initiative Amendment returns to the ballot in November, Amendment 2. If passed, Florida will join a growing number of states that have some form of legal marijuana. While recognized by these states, the sale and use of marijuana is still criminalized. As such, federal banks have not accepted reputable marijuana growers and dispensers as customers and the marijuana industry is a cash business.

Increasingly, commercial real estate has become a favorite way for marijuana entrepreneurs to protect and grow their money. Colorado, perhaps the center of the legal marijuana industry, provides an interesting look at what could happen in Florida. In the Denver area, over 3.7 million square feet of industrial space is occupied by the industry. However, landlords generally don’t like to lease to grow houses and dispensaries for fear of potential issues with the federal government including tax issues and criminal liability. Landlords are also concerned about nuisance to other tenants from odors and strain on a building’s electric and water capacity and potential fire hazard. Marijuana related tenants are often charged 4 to 5 times the market rate for space. On the plus side for landlords, rent is paid in cash as tenants have no access to bank accounts.

Many marijuana business people are investing in real estate for these reasons. With no access to bank accounts, storage of cash is a major concern. The business owners are finding that owning their own properties is a good entry into the real estate world. The value of marijuana related property in Colorado is appreciating rapidly. And, there is plenty of cash available to invest in other properties. In effect, marijuana business owners are legally “laundering” their cash and expanding their businesses.

If Florida approves Amendment 2, will we see a mini real estate boom? It is possible. Certainly, the industry will be highly regulated, but the business owners will face the same problems that Colorado owners face; the biggest being that banks won’t take their money. The risk and cost of storing cash in a house or an office is high and many owners will look for safe, quick investments to park their cash. Real estate is the obvious choice.