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Why Marijuana Legalization In California Could Boost Real Estate Big Time

November 4, 2016 9:51 am
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Next Tuesday, registered voters in the United States will not only be deciding who the next president will be, but also for millions across nine states, legal marijuana initiatives will be on the ballot. Arizona, California, Maine, Massachusetts and Nevada will have ballots on recreational marijuana, while Florida, Arkansas and North Dakota will vote for or against medical marijuana. For its part, Montana voters will determine if the state should ease the restrictions that apply to medical cannabis laws already in effect.

In California, the initiative, dubbed Proposition 64 has amassed plenty of support, with the campaign raising roughly $16 million — about 10 times what its opposition received. Among those backing this proposal are former Facebook Inc (NASDAQ: FB) president Sean Parker and hedge fund legend George Soros.

Notably, it is not only growers and vendors who can benefit from legalization. “What happens after marijuana is legalized is very much a real estate story,” Ely Razin wrote in a Forbes article.

In order to better understand what could happen in California, let’s take a look at what happened with industrial real estate in Colorado after recreational marijuana was legalized. Take into account that, last year, the legal marijuana industry generated $2.4 billion and 18,000 new jobs in Colorado alone, counting both direct weed sales and adjacent business verticals.

Another positive effect seen in Colorado was that of the reduction of warehouse vacancy rates. According to a report issued by the Portland State University Center for Real Estate, the figure dropped from 7.6 percent in 2011 to 3.1 percent by early 2015.

Furthermore, Mark Bowen, vice president in the Denver office of DCT Industrial Trust Inc (NYSE: DCT), told the Wall Street Journal that “demand from marijuana growers has driven up the cost of warehouse space for users from the natural gas and tech industries by 60 percent or more, and increased lease renewal rates by 25 percent for DCT’s clients worried that if they don’t re-sign they will lose their space to the pot industry.”

Other REITs that stand to benefit from this trend include Kalyx Development and First Industrial Realty Trust, Inc. (NYSE: FR), Razin pointed out.

Disclosure: Javier Hasse holds no interest in any of the securities or entities mentioned above.

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