As Lease Addendums Rise, Marijuana Companies Adapt by Buying Business Property

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As Lease Addendums Rise, Marijuana Businesses Adapt by Purchasing Commercial Property

WASHINGTON (April 16, 2021) – As marijuana becomes legalized in more parts of the country and more states grow, harvest, store, sell, and allow consumption, the country's real estate industry has felt the impact.

According to a new report from the National Association of Realtors®, the demand for warehouses, land and storefronts for marijuana has increased noticeably. The 2021 survey, Marihuana and Real Estate: A Budding Issue, examines the legality of marijuana in relation to only medical, legalized medical and recreational products before or after 2016.

More than a third of respondents in states where marijuana has been legalized the longest said inventory was scarce for several reasons, citing the marijuana industry as one of the factors. This also applies to areas in areas where marijuana was recently legalized, as 23% of Realtors® also blamed the marijuana industry in part for the limited inventory.

"The momentum of marijuana has been wide-ranging over the past year, which can be seen when you see how this has affected real estate," said Jessica Lautz, vice president of demographics and behavioral insights at NAR. "As marijuana laws evolve, Realtors® has seen increased demand for commercial properties to store, grow and sell marijuana."

Additionally, 29% of commercial members in states that legalized recreational marijuana in the past four years said property purchases had increased over the past year compared to leasing. Nearly half of those in states that legalized both medical marijuana and recreational marijuana prior to 2016 have received amendments to leases that limit real estate growth, compared to a quarter or less in other states.

69 percent of commercial members in states where only medical marijuana is legal said no additional addenda were added to their marijuana plant leases. This compares with 45% to 55% of those for whom medical and recreational use is legal.

Perhaps some business owners bought real estate instead of leasing it to avoid rental add-ons. In these cases, entrepreneurs no longer had to adhere to marijuana rules or regulations that they may have viewed as onerous. This trend was most pronounced in states where marijuana is now legal.

Respondents in states where marijuana is legal for recreational use were more likely to respond that homeowners associations have regularly put guidelines or restrictions in place on smoking and growing the product in public or exposed areas. Almost half of homeowners' associations opposed smoking in public areas, while around two-fifths prohibited waxing in common open areas such as a private garden with no fences.

Respondents in states that used only prescription marijuana said that often there are no rules and regulations for homeowners associations regarding marijuana.

"We have seen some property owners in the past struggle to lease their property after a previous tenant used marijuana there for an extended period of time," said Lautz. "To avoid repetition of these problems, landlords have implemented various guidelines that limit the use of marijuana in numerous cases."

Lautz says property owners who have imposed such restrictions live or own property in states where marijuana has been legal for the longest time.

"As the marijuana industry evolves, both commercial and residential landlords are balancing efforts to benefit from the advances while ensuring that their property remains desirable and of great value," Lautz continued.

methodology

The 2021 Marijuana and Real Estate Survey was emailed to a random sample of 75,000 NAR members who practice residential real estate and 72,000 NAR members who practice commercial real estate in March 2021. The survey received 8,320 responses with an overall response rate of 5.7%.

The National Association of Realtors® is America's largest trade association, representing more than 1.4 million members who work in all areas of the residential and commercial real estate industries.

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