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A "High" Time for Commercial Real Estate: A Look at the Cannabis Act from a Real Estate Perspective

February 2, 2019

 

It is not exactly "reefer madness," but recreational use of marijuana is now legal in Canada since October 2018, and like a hotbox it has left the real estate market feeling a little “dazed and confused”. The Cannabis Act, SC 2018, c. 16, stipulates a strict legal framework for controlling the production, distribution, sale and possession of cannabis across Canada. Unfortunately, the callowness of the Act leaves it susceptible to ambiguity and speculation, and without much precedent to support the new legislation the housing market has many question marks this season. So, gather your buds while I hash out my thoughts on cannabis legalization and its impact on the real estate market.  

 

It is the beginning of the green rush, and as a symbol of counterculture transforms into a mainstream industry, new crops of interest and investment are springing up in all quarters, with commercial real estate being no exception. Statistics Canada estimates that in 2017 Canadians spent almost $6 billion on marijuana, $5 billion of which resulted from the illegal sale and distribution of the drug. Legalization of the drug has increased the market’s need to get “baked”. Both recreational and medicinal marijuana are hot retail commodities, and millions of square feet of commercial real estate is suddenly in play.  The marijuana industry in Canada requires warehouses, greenhouses and retail space to meet the demand of a growing market. While the growth presents exhilarating opportunities, the uncertainty about how big the market will be carries a risk factor for investors in the real estate game.

 

Even with the looming scope of risks, many investors are blinded by green dollar signs. The commercial real estate industry believes that the legislation could not have come at a better time. With a spike in online sales the retail sector has already shown signs of weakness owing to shrinking demand where industrial and retail rents were concerned.  However, if the experience in U.S. states that have previously legalized the recreational use of marijuana is indicative of anything, there is an excellent possibility that a positive demand will result for warehouse space as marijuana production sites and retail stores for supply and sales.

 

In fact, the Altus Group, a large Canadian real estate consulting firm, states marijuana-growing facilities have already consumed 8.7 million square feet of prime commercial real estate in the first nine months of 2018. With the foreseeability of another 6 million plus square feet being in the pipeline. Ontario and British Colombia has already exhibited a rapid growth in the demand curve as marijuana grow-ups are rolling up greenhouses, warehouses and retail space into giant “spliffs”. Whereas, Alberta is forecasted to exercise privatization when it comes to the legislation, by providing licenses to private operators for marijuana sale, paving the possibility of innovative retail offerings. As the country begins to grind out the logistics behind production, distribution, sale and possession of cannabis, the commercial real estate market is positive and eagerly waiting as the legislation matures into a greener future.

 

With the Cannabis Act, it is safe to say that the crop of commercial real estate investments will undoubtedly experience growth. Perhaps an unintended consequence of the liberalization of marijuana laws, but maybe it is time the conservative culture of the legal profession steps back, loosens up and surfs the green wave. Is it time to shift to a “greener” practice and join the “high” life of a cannabis lawyer?

 

 

 

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