Real Estate Investors Flock To California Ahead Of Legalization Of Recreational Ganja
Real estate investors are flocking to California as the golden state is about the legalize recreational ganja use. The state will begin issuing temporary licenses for “cannabis commercial activity” on Jan. 1, 2018. Permanent licensing to follow within 120 days. This highly anticipated event is attracting private real estate investors from across the U.S.
California represents an enormous opportunity for ganja investors to enter the sixth largest market in the world.
State And Local Governments Are Cashing In On Taxing Ganja
The combined market for legal medical and adult cannabis use is projected to grow from $2.76 billion in 2015 to $6.5 billion by 2020 according to a report co-produced by New Frontier Data and ARCVIEW Market Research. That’s not even figuring in revenue from real estate, technology development or the overall economic impact of the cannabis market.
That’s not even figuring in revenue from real estate, technology development or the overall economic impact of the cannabis market.
Commercial ganja activities will add significant revenue to tax coffers from licensing fees and other taxes. The state charges a 15% excise tax on ganja sales and taxes cultivation at $148 per lb.
Local governments will also collect sales on ganja purchases and may impose other taxes.
California municipalities are already licensing ganja businesses. The state requires proof the local jurisdiction has authorized the business before issuing a state license.
Local Licensing Is Biggest Hurdle
State and local governments are currently developing rules for regulating the ganja industry. The act was enacted by the state in June to create one regulatory system for both types of cannabis uses.
All businesses engaging in commercial ganja activity must secure licensing and other authorization from the local jurisdiction before the state will issue a license.
Obtaining local licenses for dispensaries presents the greatest challenge for the cannabis industry.
The dispensary application process is financially risky. It requires a significant upfront investment without certainty of success. This includes the cost of acquiring or leasing a property. It also includes the non-refundable application fees that range from $5,000 to $50,000.
Secondly, it depends on the limited number of dispensaries cities will allow and the methods used to approve applications. Licensing may involve a lottery system. It could also include a majority vote by the city council.
Is Real Estate Is The Most Conservative Way To Invest In The Ganja Industry?
Aaron Hertzberg, a partner and general counsel for Calcannholdings Inc. told National Real Estate Investor:
The biggest demand seems to be for cultivation space. Prices for warehouse space have skyrocketed over the last 12 – 24 months. Growers in the Bay Area are paying $2 per sq. ft. or more for warehouse space.
Ganja growers are also being warned about signing long-term leases for warehouse space. Warehouse rents shot up when Colorado legalized cannabis for adult use but indoor growers lost their shirts when the market was flooded with cannabis and the price dropped significantly.
Denver required indoor pot cultivation in areas zoned for plant husbandry after pot became legal. The price of ganja dropped from $4,000 per pound to $1,000 per pound. As a result, growers moved their operations into greenhouses. Commercial rent on greenhouses of the cost of warehouses and provide similar growing conditions with less power.
The biggest challenge for ganja real estate investors is finding capital to finance investments. Federally chartered banks and institutional capital will not invest in real estate assets used for commercial ganja because it is illegal under federal law.