Cannabis Is Impacting Commercial Real Estate Demand In 2023

As more states legalized marijuana, more businesses opened to sell it for medicinal or recreational uses, or both. This has impacted commercial real estate demand, with a potential for continued growth across the nation as more states consider formally legalizing cannabis.

Commercial Real Estate Demand Gets High

Considering that legal recreational cannabis alone is now a $15 billion dollar industry, a figure that’s expected to surpass $25 billion in just three years, the combined medical and recreational marijuana businesses are actively impacting commercial real estate demand in 2022. 

Owners of a variety of commercial real estate holdings, from stand-alone shops to strip malls, are seeing retail rental and purchase demand expand to a degree that many never expected. Warehouse facilities are seeing an even higher increase in demand.

The following sections introduce managers and owners of commercial real estate to the needs of cannabis-based businesses, together with the states where these businesses are legal and actively seeking retail and/or warehouse space.  

Taking Care of Business: Cannabis Retailers and Real Estate

While the term “marijuana dispensary” was initially used to describe retail sales fronts, it has been largely replaced with “cannabis dispensary.” 

This is now considered the politically correct term and is a popular internet search phrase for these businesses.

Because the cannabis industry is heavily regulated, licensing is complex. 

These not only vary from state to state, but they can also change depending on the cannabis retailer’s business category and which city or county they’re planning to open their business.

With this in mind, it’s important to check city and county zoning laws before any commercial real estate is offered for sale or rent to a cannabis-based business.

Storefront Locations and Looks

When viewing potential locations and building styles, managers of cannabis dispensaries usually envision retail space suitable for a layout similar to a traditional pharmacy or provider of medically-related services, such as non-surgical cosmetic procedures or IV vitamin therapy.

_{It’s important to check city and county zoning laws before any commercial real estate is offered for sale or rent to a cannabis-based business.}

Retailers of recreational marijuana often mimic the interior design used by their dispensary colleagues. 

This is because recreational and medicinal cannabis products are often displayed in similar containers. 

Some recreational cannabis retailers describe themselves as “recreational marijuana dispensaries.”

Commercial Development Strategies Used by Dispensaries 

Managers and brokers involved with rented real estate may be asked to assist with the build-out and to recommend contractors who are willing to take on this type of project. 

(Even though the majority of the American public supports the legalization of cannabis, some are still opposed to its use, including commercial contractors.)

Not all new dispensaries will require a total build-out. A few have gone rogue, moving into commercial buildings that were formerly home to a different business and “re-purposing” them with minimal fittings and fixtures.

One infamous example: Los Angeles cannabis retailer Kind for Cures takeover of a former Kentucky Fried Chicken building. 

_{Not all new dispensaries will require a total build-out. A few have gone rogue, moving into commercial buildings that were formerly home to a different business and “re-purposing” them with minimal fittings and fixtures.}

While its owners won marketing awards from local publication LA Weekly, the owners of KFC cited trademark infringement until Kind for Cures repainted the building’s KFC-red mansard roof to green (what else?).

Cannabis Businesses and NIMBYs (Not In My Back Yard)

While most Americans support the legalization of medical cannabis, not all of them want their business to be near a cannabis-based business. 

According to data from the National Association of Realtors (NAR), members who are employed or who invest in the commercial real estate sector have noticed the following trends: 

• 22% of members in states where medical marijuana is legal have noted that some tenants do not want to be near a dispensary.
• 28% of members in areas where both medical and recreational cannabis are legal have noticed this within the past four years.
• This number rises to 38% in states where both forms of cannabis were legalized more than four years ago.
• The most prevalent concern among potential neighboring businesses: The smell of marijuana being recognized/detected by their customers.

As mentioned previously, those involved in the rental or sale of commercial real estate will want to consult existing tenants before showing retail or warehouse space to a cannabis-based business.

National Cannabis Legislation

As of July 2022, the map below accurately describes each state’s cannabis laws:

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