Are you ready for marijuana sales in grocery stores? You can pick up a gallon of milk and marijuana in one convenient location! Canada recently passed legislation legalizing marijuana for the entire country and two provinces announced that they will allow sales in grocery stores. What does this mean for Colorado’s Cannabis industry? What is the impact on real estate?
Supply Increases
The recent Canadian legislation will drastically increase supply of marijuana as legal growers ramp up to meet demand. Along with Canada’s increase in supply Oregon, Washington, California, and others have also entered the market drastically increasing the supply of legal Cannabis while driving prices down substantially. This increase in supply impacts Colorado as Colorado was a “net exporter” of Cannabis to other locations. As more legal grows come online prices will continue to fall in Colorado.
Impact on Colorado Cannabis
The state’s marijuana shops sold $124.31 million in medical and recreational cannabis during April basically the same amount as 2017, according to sales figures released by the Colorado Department of Revenue. Colorado is seeing the impact of increased supply both statewide and throughout the country. This trend will likely continue/accelerate in 2019.
Impact on Colorado Cannabis real estate
The pricing pressure is already starting to trickle through industrial real estate. Cannabis tenants are not economically able to continue paying stratospheric rents. Many have vacated facilities to move to lower cost production in greenhouses or to small metro areas (Pueblo, Trinidad, etc…). Growing Cannabis has turned into an agricultural commodity with margins shrinking and profitability decreasing. This trend will continue to accelerate as supply continues to press prices down.
As Cannabis prices continue to fall industrial real estate will be the most heavily impacted. Many of the growers are in class C/D properties that will difficult to gain new tenants due to low ceilings and dysfunctional designs. For example, who needs a building that was sliced into countless small windowless rooms with tons of electricity? Higher class buildings (A/B) will continue in high demand throughout the metro area regardless of what happens to the Cannabis industry.
The Day of Reckoning is here for the Cannabis industry
Drastic changes in the industry are transforming the business models of many in the industry. Due to increased supply and constant demand basic economics will rule going forward. The Cannabis industry has begun the transformation to a more “mature” industry that will face increased pricing and supply issues. This transformation will be felt throughout the real estate industry as rents / prices come down from the “high” they were on.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Fairview is the recognized leader in Colorado Hard Money and Colorado private lending focusing on residential investment properties and commercial properties both in Denver and throughout the state. We are the Colorado experts having closed thousands of loans throughout the state.
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