How legalized marijuana could impact real estate in Arizona

Denver industrial broker Mike Viehmann explains the impact of legalized marijuana on the Colorado industrial market.

If Arizona voters pass Prop 205 legalizing recreational marijuana, it could have a big impact on the industrial and retail market around the state. 

Consider what has happened in Colorado, for example. The marijuana industry accounted for 35.8 percent of Denver's newly occupied and constructed industrial space between 2009 to 2014, according to CBRE.

"Our industrial market here in Denver is about 200 million square feet. The growers have estimated to assume about 4 million square feet of that," said industrial broker Mike Veihmann with Cushman & Wakefield. 

Since recreational marijuana has been legalized in Colorado, the state has seen a influx of growers and sellers moving into retail and industrial buildings.

However, there are regulations around where the growers can set up shop. The state has ordered that these particular tenants have to be at least 1,000 feet away from residential areas. 

Thus, most of the growers are concentrated in certain parts of towns and cities in Colorado. 

"It's effected, kind of, fundamental pricing in general -- both lease rates and sale prices," said Veihmann. They've gone into these buildings that were formerly, you know, class C manufacturing buildings that were trading for $40 to $50 a square foot on a sale basis. They were now trading for upwards of $100 a square foot."

There are 214 unique marijuana retail addresses in Denver alone, according to the Colorado Department of Revenue. That's five times more marijuana stores than non-grocery Starbucks in Denver. 

"Assuming each of these dispensaries leases an average of 2,000 square feet., the footprint can be estimated at around 428,000 square feet or 2.8 percent of the city's non-shopping center retail footprint," according to CBRE.

The influx of growers and sellers moving into certain areas comes with its challenges. 

It can take over a year for these building to be properly equipped to grow and sell their first harvest. This can lead to more pressure on landlord's normal cash flow, as well as higher rates of tenant failure. 

"Institutional capital is not yet an option if investors plan to lease marijuana businesses. Unless a building is owned free and clear, the investor runs the risk of a bank calling in the loan," as reported by CBRE. 

Colorado law requires security cameras at entrances where growing or transport preparation of marijuana occurs. And customers are required to pay in cash, which can put employees, buyers, and surrounding areas at risk for crime. 

The industry faces more than just the challenges mentioned, but has also had its benefits.

For example, Colorado has seen a large boost in tax dollars collected over the past couple years. According to the Colorado Department of Revenue, the state collected double the amount in 2015 compared to 2014. 

It was also reported by the Colorado Department of Revenue that 44 percent of recreational marijuana sales were made by out-of-state visitors in 2014. Popular tourist locations around Colorado mountain towns saw closer to 90 percent go to visitors. 

Its impacts in Arizona may not mirror those in Colorado, but their experience give insight into the challenges and benefits marijuana has had on real estate and the state's economy. 

Copyright 2016 KPNX


JOIN THE CONVERSATION

To find out more about Facebook commenting please read the
Conversation Guidelines and FAQs

Leave a Comment