Change is coming (whether you like it or not), and the legalization of marijuana will have an impact on the local real estate market. Over the next couple of decades, and with earnings estimates in the hundreds-of-millions of dollars, it will become a legitimate business and a part of our daily lives. Here are five major ways that it will affect Hawaii real estate, and what to look out for in the years to come.
• Commercial/Industrial Property Demand
The biggest demand on our local economy will be for commercial & industrial real estate. As previously outlined by Pacific Business News, demand will be “high” (pun intended) for businesses looking to open grow spaces, processing plants, and dispensaries. Some experts warn of elevated-levels of danger, especially in processing centers that make hash oil, but most worry that the high demand will tax our (already depleted) inventory of space.
• Rental & Community Property Rules
Back in 2014, Governor Neil Abercrombie, signed into law HB 1503/Act 60. This stated that any eviction based on medical marijuana use would be void, essentially making it illegal to evict a medical marijuana patient. As dispensaries open and access to medical marijuana becomes more prevalent, landlords and community associations are going to have to create rules to govern the growing, processing, and use on their premises. This will also have an impact on property values, as governing rules and stigmas affect buyers in general.
• State: Legal vs. Federal: Illegal
The biggest problem with legalizing weed on a state-by-state basis is the federal government’s oversight. In places that have already legalized some form of weed distribution, there are stories of the FBI seizing state-legitimate marijuana businesses in violation of federal laws. This also creates problems with lending policies, because banks are federally mandated and not allowed to give loans to marijuana businesses. In Hawaii, this has created “huis” or groups of private investors to pool their money together in order to afford an expensive medical marijuana license. However, these investors may still run into problems because banks (like those in Denver) may create further roadblocks by not offering new or refinancing to places that lease to marijuana businesses.
• Property Disclosures
On the residential real estate front, the biggest question will be whether the state/city/board of realtors will mandate the disclosure of marijuana production in a home. Right now, the list of medical marijuana users is confidential and disclosure when selling a property is not mandatory. But, with the federal government warning of the potential dangers in marijuana production, I wouldn’t be surprised to see it mandatory in future disclosures.
• Stigma Affects Value
Let’s start with two buying scenarios. Scenario 1: You are 100% against weed, and walk into a prospective home next to a medical marijuana patient who grows and processes their own medicine. Scenario 2: Say you’re a medical marijuana patient looking to buy a condo, and you read that the association does not allow growing personal medical marijuana. In both these situations, the laws, rules, regulations, and personal opinions affect the value of these properties. For both scenarios, you would not be interested in the property and the listors are losing a whole group of potential buyers. It’s not an entirely new scenario (restrictions have always played a role in valuing property), but it will be interesting to watch how much marijuana, in particular, will affect local real estate.
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The other aspect regarding banks is that the federally-regulated banks (held hostage by the FDIC) are not only restricted from lending money to these businesses for the purchase of the property, but also for their ongoing financial operations. Therefore, the hundreds-of-millions of dollars would be almost entirely a CASH business. This could greatly affect the real estate in the immediate vicinity of the business due to an increased risk of burglary and robbery due. Basically, the safes and vaults in these businesses would become an attractive nuisance in the neighborhood, for criminals.