Culture

Landlords Are the Winners in Pot’s Booming Business

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Councilperson Albus Brooks, middle, and Spanish translator Indira Guzman-Sais, to the right of Brooks, speak against gentrification during a press conference on the steps of the Denver City and County Building on September 19, 2016. As the oldest established legal recreational cannabis market, Denver has seen its industrial real estate skyrocket in price. HELEN H. RICHARDSON/THE DENVER POST/GETTY IMAGES

This article, and others on the future of what might be America's largest new cash crop, is found in Newsweek's Special Edition: Weed.

Cannabis legalization has seen—to the chagrin of drug warriors at the state and local level—upticks in tax revenue, tourism and local economics, and a steady decrescendo of use among youth. But the people benefiting most from legal cannabis—to the chagrin of folks hoping to break into the newly legal industry—are landlords. Because most cannabis farming is done indoors, massive amounts of warehouse space have to be rented. What’s more, most landlords are still wary of the cannabis industry, so the ones who are willing to rent to cannabis businesses can charge multiple times the market value, which cuts smaller entrepreneurs out.

San Diego

San Diego is one of many California cities that will likely see a booming cannabis trade as recreational sales in the state reach cruising altitude. According to cannabis industry research firm BDS Analytics, cannabis sales in the Golden State are set to surpass beer sales in 2019: Weed is expected to bring in $5.1 billion next year, as beer sales are expected to remain steady at $5 billion. Though some landlords aren’t willing to assume the risk, for Chris Ly, director of alternative investments at the San Diego–based McKinney Capital and Advisory, the profit margins possible are too great to ignore. “There have been no federal raids or forfeitures in four years,” Ly told Our City: San Diego of his company’s willingness to take on cannabis investments. “There is always the potential that something catastrophic could happen. But the worst-case scenario for us is that we have to rent to non-cannabis tenants at market rates, instead of two to three times that.”

Denver

As the oldest established legal recreational cannabis market, Colorado’s largest city has seen its industrial real estate skyrocket in price. Most of the relevant space can be found in low income neighborhoods, and with warehouse space renting at two to three times market value, the surrounding residential markets are being priced up as well. The neighborhoods of Globeville and Elyria-Swansea, now known in gentrifying realtor jargon as GES, have some of the fastest rising rent prices in the city, squeezing out the area’s 10,000 mostly Latino residents. The last census average household income statistics of $44,700 in Elyria-Swansea and $39,200 in Globeville put GES well below Denver’s $73,100 average, and as of April 2018, there were more than 200 licenses to cultivate cannabis in the area’s warehouse space. A construction project on I-70, which bisects the area, is also claiming nearly 100 homes through eminent domain in what could be the death blow to a neighborhood whose primary fight was with legal cannabis.

Boston

In the Boston suburb of Quincy, Massachusetts, a dilapidated warehouse was rented in 2014 to Ermont, a medical cannabis grower that proceeded to put $4 million into the property. “The landlord knew he was sitting on a gold mine,” a representative of the company told The New York Times. Earlier this year, Innovative Industrial Properties, a cannabis firm based in San Diego, purchased a multimillion-dollar industrial space in another Boston suburb, Holliston, proving that though the cannabis marketplace in Massachusetts—now in a kind of retail-less limbo—is set to explode, savvy entrepreneurs are investing in infrastructure in order to avoid the pitfalls of those growing in other states.

This article was excerpted from Newsweek's Special Edition: Weed. For more on the fast-rising culture of cannabis, pick up a copy today. 

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