WASHINGTON D.C. — A new definition for “hot property” has emerged within the real estate market. The recent string of state-level marijuana legalization continues to impact commercial property demand and residential housing decisions throughout the U.S., according to findings from a study done by the National Association of Realtors.

“Marijuana and Real Estate: A Budding Issue,” found that in states where prescription and recreational marijuana use is legal, more than a third of those polled said they saw an increase in requests for warehouses or properties used for storage. In those same states, up to one-quarter of members said the demand for storefronts grew, while one-fifth said there was a greater demand for land.

The NAR report examines how marijuana is grown, harvested, stored, sold and consumed within states where the product is legal. Because each law and the duration of time when which the product has been legal varies by state, the study is summarized by legal for medical use, legal for both medical and recreational use after 2016 and legal for medical and recreational use before 2016. The states where marijuana has been legal for the most amount of time have seen the largest impact on both commercial and residential real estate.

“As more states legalize marijuana, the real estate market will progressively have to adjust,” said Dr. Jessica Lautz, vice president of demographics and behavioral insights for NAR. “From property owners, to manufacturers, to those who simply want to engage for leisure — it all touches real estate in some form.”

Commercial Real Estate

NAR surveyed its membership regarding their interactions with marijuana and the real estate sector in states where the product is permissible. The study finds that commercial practitioners are facing an increased demand for land, warehouses and store fronts that are intended for marijuana.

“When the business of marijuana is discussed, some have a tendency to focus on only the buyers and sellers of the product,” Lautz said. “However, these numbers show that marijuana has been a boon to commercial real estate.”

Marijuana as a business has prospered for more than a decade and that growth continues to evolve, the study states. In the states where medical and recreational marijuana have been legalized for three years or more, each saw increases in the demands for commercial properties. Moreover, some commercial properties near marijuana dispensaries experienced rises in property values. In states where marijuana is legal for both recreational and medical use, more than one in five saw an increase in property values near dispensaries — a smaller share saw a decline in values.

Although real estate has seen gains by its connection with marijuana, property owners and the commercial real estate industry have had to make accommodations to fine tune the partnership. For example, half of those in states that legalized medical and recreational marijuana before 2016 said they saw addendums added to leases that restrict growing on properties.

Additionally, in situations where a tenant was permitted to grow marijuana in their rental property, it was most common for the renter to pay utility costs. In fact, when a tenant regularly smokes marijuana in their rental property, nearly nine out of 10 tenants take on the costs of utilities, said the study.

Residential Real Estate

Marijuana also has a rapidly growing presence within residential real estate, with no signs of decelerating. The demand for housing and residential properties has also intensified as more states relax marijuana laws. Of the states were marijuana is legal in some form, between 9 percent and 23 percent of members who were polled there said they believe inventory is scarce for multiple reasons, including all-cash purchases from the marijuana industry.

In addition, while the majority of NAR members said they have not seen any changes in residential property values near dispensaries, between 7 percent and 12 percent answered that they have indeed seen an increase in values. Conversely, 8 percent to 27 percent said they have observed a decrease in residential property values near dispensaries.

“Residential practitioners are getting used to the new normal of having marijuana legally used within rental properties, while homeowner associations are tasked with setting new rules to address consumption and growth,” Lautz said.

The majority of respondents reported that homeowner associations have rules that place certain restrictions on smoking and growing marijuana in homes or common areas. Only around 3 percent answered that specific homeowner associations do allow growing or smoking in home or common areas.

In the states with legal medical marijuana or recently legalized recreational marijuana, three-quarters of members had never tried selling a grow house. Among residential members who have sold a grow house, 29 percent said they had a difficult time doing so. Twenty-seven percent of members in recently legalized states had difficulty selling a grow house, compared to 25 percent in states that legalized before 2016.

Because marijuana is often an all-cash business, earnings from those who profit are frequently cash proceeds. About one-fifth to a quarter of landlords said they were unwilling to accept cash for rent in any instance, while about 10 percent said they will not take cash from an illegal federal activity for rent. Still, 42 percent of those in states where medical marijuana is legal answered that they would accept cash payments for rent. Among those renting where marijuana is legal for both prescription and recreational use, two-fifths said they would accept cash for rent.

Finally, about half of NAR members in states where medical marijuana is legal said they had no issues leasing a property after it was previously occupied by a tenant who legally grew marijuana. Thirty-five percent to 49 percent of those in states where both medical and recreational marijuana are legal said they had no difficulty leasing the property to a new occupant. That said, the most common problem among these properties were lingering odors, followed by moisture issues. Both matters were more common in areas where recreational marijuana has been legal for a longer period of time.

Methodology

The 2019 Marijuana and Real Estate survey was sent through email in September 2019 to a random sample of 76,000 NAR members who practice residential real estate and 76,000 NAR members who practice commercial real estate. The survey received 3,062 responses from residential members and 611 responses from commercial members for an overall response rate of 2.4 percent.

The National Association of Realtors represents more than 1.4 million members involved in aspects of the residential and commercial real estate industries.