The legal pot business -- both medicinal and recreational -- is creating a rare opportunity for commercial real estate investors and owners who can offer the right spot at the right price: theirs.
Greenhouse growers are powering a surge in business for industrial real estate investment trusts (REITs) like Innovative Industrial Properties (NYSE: IIPR), as well as NewLake Capital Partners and GreenAcreage Real Estate, two firms that just announced their own plans to merge.
And now there's the storefront side as state after state legalizes recreational use. It's not easy getting the local go-ahead, though, with zoning restrictions and other barriers standing in the way. But for those who can get it done, the rewards can be, well, high.
"The retail properties can generate sales per square foot comparable to some of your top retail stores in the world," Anthony Coniglio, NewLake's CEO, says in a Wall Street Journal article titled "Land Rush Is On in Four States That Approved Recreational Pot Last Year" [subscription required].
And they can pay a very pretty penny for their space. The WSJ piece cites examples where retail space for legal pot businesses is being leased at twice the normal market rate or more.
"People know they can charge cannabis an absurd amount. It's the new norm," says Patrik Jonsson, northeast regional president for Curaleaf Holdings (OTCMKTS: CURLF), a Canadian operator of dispensaries in 23 states.
A big business promises to get bigger, and soon
More than 30 states have legalized recreational or medical marijuana -- or both -- and more are expected to follow suit. Grand View Research estimates a compound annual growth rate (CAGR) for the cannabis industry of 18% through 2027.
Consumer research specialist IBISWorld says there already are 25,766 medical and recreational marijuana stores in the U.S., and according to Marijuana Business Daily, legal sales are projected to double nationwide to about $37 billion in 2024, Illinois alone, in its first year of legalized recreational use, reported just more than $1 billion in sales.
And one very big enchilada -- the state of New York -- is about to join the party.
"We're still seeing demand just at the very beginning for this industry," NewLake's Coniglio said in the WSJ article. (Check out this Motley Fool deep dive with Coniglio for more on that topic.)
The Millionacres bottom line: Supply > demand = opportunity
If the federal government legalizes the stuff, that should only unleash more positive market forces, further fueling the 21st-century version of reefer madness. That's not a given, though.
While such legislation has passed in the House before, and could well again this year, its fate in the Senate is far less certain. Plus, President Joe Biden is no fan of legal pot, and his White House has notably already fired staff for prior use.
So, illegal marijuana sales still far outpace legal sales, even where pot is legal, but the legal side is a big market that shows signs of just beginning to get much bigger, and quickly.
The opportunities are diverse, with warehouse space and storefronts already in demand, and maybe even the emergence of tavern districts that now provide a hip place to drink accommodating some legal weed, too. It's not a thing now, but that seems like a reasonable possibility as one more way marijuana legalization can affect the CRE landscape.
And that means real opportunity for property owners who can navigate the maze of legal and financing restrictions to provide entrepreneurs the room to roam this new CRE frontier.