I joke that the average person can only have so many vices and remain a functioning member of society. There is not and endless demand for vices. Adults will choose their preference and forgo alternatives. This is a zero-sum game with winners and losers. What impact will the increase in marijuana consumption have on other industries. How will this impact real estate?
Is legal marijuana good for all real estate in Colorado? Since the legalization of Marijuana, commercial real estate prices have spiked. Most notably in the industrial sector. Will other real estate categories catch the marijuana golden leaf and appreciate as well? There have been several interesting studies recently that show an inverse relationship between marijuana and other vices.
For example, as marijuana consumption increases alcohol consumption has decreased (see beer sales down especially among millennials). This seems plausible since most people partake in one or the other at any given time as other choices are offered (like legalized marijuana), the consumer will consume less of something else.
What impact are consumer preferences having?
As mentioned above the inverse relationship of marijuana and other vices will have far reaching impacts. For example, sale volumes of premium beers declined by 4.4% and economy brews dropped 2.4%. The shift is most prominent in Denver, where total beer volumes plummeted by 6.4%. According to a Denver Post article craft breweries boasted a 1.7 Billon economic impact
What does this have to do with real estate?
Let’s assume breweries impact is 1.7 billion dollars as mentioned in the Denver Post. As sales fell 6.4%, this means the economic loss to breweries is about $108 million! This is a pretty big hit to the industry and likely will continue for the short term as the market settles out and marijuana becomes more socially acceptable. Any industry losing 108m in a year of income will surely have to adapt. I suspect we will see less breweries opening and more smaller breweries going under. In turn real estate will be impacted
What should you do?
It seems like every few days there is a new trendy brewpub opening. Unfortunately, this trend is not sustainable as alternative vices are now competing for consumers attention. What happens when marijuana consumption in adult venues (like a bar/club) become mainstream? This will further crimp demand for the brewpub concept. From a real estate perspective, I would be hesitant to lease to a new brewpub since many of the space configurations (think of a floor that can hold large tanks) and improvements might not be transferrable to other uses.
In summary, as marijuana becomes more mainstream, disposable income will allocated differently by consumers. It looks like the first byproduct of the change in consumer habits will be the beer industry. Nobody knows for sure what “equilibrium” looks like as the marijuana industry is still evolving. The best advice is to hedge your bets and be very cautious in the beer business and real estate related to the industry until we see more definitive numbers.
Resources:
- http://www.denverpost.com/2017/07/26/beer-sales-down-especially-among-the-millennials/
- http://time.com/money/4592317/legal-marijuana-beer-sales/
- http://www.denverpost.com/2016/09/02/colorados-craft-beer-industry-boasts-1-7-billion-impact/
- https://www.bloomberg.com/news/articles/2017-08-03/ros-is-seeing-explosive-growth-as-its-summer-rival-beer-goes-flat
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.
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