As John Oliver pointed out on Sunday’s Last Week Tonight – the quasi-legalization of marijuana in various states and districts in the United States has created something of a grey market potentially worth tens of billions of dollars.
Regular readers, were of course already familiar with many of these issues – since they were front and center at Innovation Project 2017’s cannabis panel. Marijuana’s status as legal, or somewhat legal, in the states, but still classified federally as a Schedule I narcotic is problematic, particularly in regards to moving money though and around it.
Today marijuana is almost entirely a cash-based business, because banks don’t want to run afoul of RICO laws that could technically interpret any payment to or from a dispensary (or any other marijuana marketplace player) as an act of money laundering and wire fraud. That mans dispensaries pay their taxes, employees and suppliers in cash – a situation as insecure as it is opaque.
Whether closed loop payment solutions – which look to build payment rails for cannabis that are state specific, RICO compliant and secured with things like tokenization – will be the solution for freeing the industry from its cash dependance remains to be seen.
“Marijuana is never going to be just any other good,” Shaunt Sarkissian noted “And I don’t think anyone thinks that it will be. But if we can get cannabis to be more like beer — something that we let the right people buy at the right time — I think that will be a big improvement. And it is very doable to make marijuana much more like beer.”
But even if innovators do manage to square the federal vs. state legal status circle when it comes to cannabis payments – there remains a question of what a good like cannabis, which will never be “just any other good” starts functioning a lot more like beer in the commerce landscape.
The early results are rolling in – and it seems pot is doing more than just expanding the minds of people who smoke it – it’s also reshaping the commercial landscape they are smoking in.
Reshaping Commercial Real Estate
Though marijuana is comparably easy to produce – those who wish to break into the market still need a place to grow it, which means in states where the recreational (or easily accessible medical) sale of cannabis is legal have seen factories, warehouses and self-storage facilities are being repurposed as grow zones.
Suburban strip malls that once had nail parlors and off-market apparel retailers are now starting to see storefronts selling pre-rolled joints and edibles.
In Quincy, MA, in preparation for coming Boston dispensaries selling to recreational users, up and coming cannabis start-up Ermont told the Times it is paying more than market rate for the previously dilapidated 36,000-square-foot building it rents.
“The landlord knew he was sitting on a gold mine,” said Zach Harvey, one of Ermont’s financial backers.
Sales of legal cannabis bit $6.7 billion in the United States last year and could be as much as $20 billion within the next fives years.
“This is a new segment of the industrial real estate market that is being created in front of our eyes,” said George M. Stone, a longtime real estate executive now focused on the pot business. “It’s a huge industry and only getting bigger.”
Warehouses have in particular seen the boom – since their size makes large grow set-ups possible – and their proximity to places where pot is sold is useful in a situation where payments are n cash and crops can not travel across state lines.
But there are also bubble fears. A tightening of regulations on cannabis could see a lot of investors who’ve spent big on renovating warehouses into expensive grow set-ups loose big; a loosening of federal regulations would mean that growers could turn to less expensive grow set-ups.
But for now, those concerns, according to the New York Times, are being set aside in favor of enthusiasm for economic transformation.
“These are factories that were sitting empty,” said Drew Sigfridson, a local broker with the Boulos Company.
And prices are going up.
Pushing Housing Markets
Generally speaking, when it coms to home-buying, consumers don’t like to live near “vice.” Things like bars, liquor stores and strip clubs tend to be zoned a ways from residential real estate for the good reason that people don’t tend to like to live near them.
But it seems cannabis is may turn out to be the vice no one minds living next to.
In Colorado, the state where recreational marijuana has been legal the longest (since 2014) median home sale price in the state has increased from $248,000 in the first half of 2014 to $298,000 in the first half of 2016, according to the realtor.com analysis.
Now it would be unfair to give all the credit for that to cannabis – the state’s population has gone up 1.9 percent since 2014 and by all accounts it is a lovely place to live, particularly for people who like hiking.
Still, it is worth noting that towns and cities in Colorado that have opened up for recreational sale have seen their real estate prices rise faster and higher than the rest of the state.
Where cannabis is legal, the median sold price was $302,500 in the second quarter of 2016, according to the realtor.com analysis. The median sold price in the more than 200 localities where grass remains illegal is $267,200 – or 13 percent less. Now, it is notably that many of the places that have legalized are also some of Colorado’s most attractive and touristy locations – thus home prices would also be higher – but it indicates that pot for sale minimally isn’t hurting home prices – and might be getting them a bit higher.
What’s Next
Legal cannabis sales were worth a little under $7 billion last year – and are projected to exponentially increase over the next several years as more stats loosen regulations – and as stats that have already legalized bring their formal sales apparatus online.
It’s bad news for beer – incidentally – since surveys are now showing that 27 percent of beer drinkers have switched to low calorie pot. Analysts estimate beer could loose $2 billion a year in revenue from legalization.
It seems cannabis, if not the new beer already, is well on its way.
But the regulatory grey area that our IP panel and John Oliver pointed out remains a dangerous piece of instability in a multi-billion dollar market. A market that as it turns out has a lot of very mainstream markets leaning up against it.