One of the big arguments for legalizing marijuana, even for those who don't care to indulge, is that it's a cash cow for the tax coffers. But new research shows that's happening in ways perhaps unexpected as state after state loosens their grip on reefer madness.
Clever Real Estate, a nationwide listing and agent-matching service, has found that home property values in states that have legalized medical and/or recreational marijuana have risen more than in states where the plant product is still prohibited.
And the increase is much higher in states where recreational marijuana is legal compared with states that allow just medicinal use or none at all, Clever Real Estate said in its report released in July.
A gateway to higher demand for real estate
The Clever report says that from 2017 to 2021, property values rose $17,113 more on average in states where recreational use is legal compared to those where it's illegal or limited to medicinal use.
Marijuana is now legal for recreational and/or medicinal use in 36 states and Washington, D.C. That's despite concerns that legalized dispensaries could lead to problems such as increased crime in their immediate surroundings and by their customers, who may find marijuana to be a gateway drug to harsher substances.
Instead, the Clever research says legalization may actually be a gateway to something quite different: "As states tax marijuana sales for the first time, the increased revenue drives new investment in things such as public services and infrastructure -- which in turn drives higher demand in real estate, higher property values, and greater revenue from property taxes," says Francesca Ortegren, the listing firm's data scientist.
Just blowing smoke? Prices are rising everywhere.
Of course, home values are rising fast pretty much everywhere -- for reasons far more obvious, like supply and demand. So how do we know that Clever isn't just blowing smoke when it attributes some of those gains to legalized pot?
"To learn how marijuana legalization may impact real estate, we used publicly available data from Zillow and the U.S. Census, among other sources, to explore the relationships between home values, marijuana legalization, dispensaries, and tax revenue. We used multiple regression analyses to model current trends and predict future patterns," says Ortegren, who holds a doctorate in cognitive and experimental psychology from Texas Tech University.
The report found that, on average, home values increased by $470 for every $1 million increase in tax revenue. In 2020, eight states reported a full year of marijuana tax revenue totaling $2.3 billion, including $1 billion in California alone. The Golden State saw the biggest increase in home values -- $128,341 since 2017 -- after controlling for other variables.
The same is true on a local level, Ortegren says, writing, "Between April 2014 and April 2021, each new dispensary in a city where marijuana was legal drove home values up by $519 on average -- regardless of whether the dispensary sold recreational or medicinal marijuana."
The Millionacres bottom line
"Numerous factors determine home values, including the home's features and conditions, the area's amenities, and local crime rates. Legalizing marijuana can impact each of these criteria in ways that are both predictable and surprising, particularly by creating fresh demand for housing, new businesses, and tourism," Ortegren writes.
I'm no data scientist, but Ortegren is. There can surely be arguments made to counter those she makes in this 19-page report, but what seems indisputable is that legalization and the legitimate marijuana industry itself are both growing like a weed, with public support reported at an all-time high and the U.S. cannabis industry currently worth an estimated $61 billion.
You don't have to buy a house next to an opium den or something to profit from all this. In fact, you can't -- dispensaries are not a place where the product is consumed. That may yet come, but right now it's more like a liquor store than a bar. We're not talking Amsterdam here.
But there are multiple ways for real estate investors to get involved. For starters, commercial real estate owners can look into renting to a dispensary, although that might come with restrictions much like those brewpubs face now. We share some thoughts on that reality, CRE, and legal pot here.
Or to keep it simple, there are publicly traded real estate investment trusts (REITs), like Innovative Industrial Properties (NYSE: IIPR) and a couple new competitors. You don't have to be a ganjapreneur to cash in on this chronic opportunity.