No matter what you think about the ethics or morality of legalizing marijuana, Justin Trudeau’s Liberal government has promised to do just that during their first term. The fact is, we started down that path when medical marijuana was legalized. So, how will this impact real estate markets in Canada?
The Colorado Housing Market Exploded
We see clues to the impact of mainstreaming the recreational marijuana business in Colorado, the first state to replace prohibition with regulation. On 01 January 2015, they celebrated their first year with operational adult use marijuana stores and, perhaps coincidentally, there was also a huge increase in real estate prices. Though it’s difficult to separate the pot boom from the growth of other industries, in Denver, the city’s economic health has led to a serious increase in home values. The median home price in Denver is up 15.9% from last year. Vacancy rates in all sectors—residential, commercial, industrial—are all down, and so is unemployment. Home sales are up 3.1% from last year.
Economics of The Marijuana Industry
Make no mistake, the participants in this business are capable and savvy entrepreneurs. The growers are scientists, not hippies, and the “dealers” have MBAs and own stores. What this translates to is jobs, jobs, jobs – directly created by the grow ops (farms or buildings) and the stores and, indirectly, in other sectors (lawyers, accountants, landlords, construction workers, transportation, equipment suppliers). Of note, in 2014, Colorado’s economy was the fastest growing in the US. But, they had the advantage of being “first to market” so the future economic impact for followers is likely to be less dramatic as competitors like Canada enter the sector. Still, demand for real estate should rise as it does with any increase in economic activity.
Canadian Regulation of The Industry
But the scenario in Canada will probably be different. We have already witnessed the highly regulated, conservative approach taken when medical marijuana was legalized here, as opposed to the “Wild West” capitalism in Colorado. Increased red tape and licensing requirements will slow any potential gold rush. For example, when Washington state legalized pot, they banned retail outlets and limited the size of farms to 5 acres. Similar moves in Canada would slow any potential increase in real estate demand. Overall, though, Canadian real estate markets, which have no conscience, will probably feel a positive impact from the emerging recreational marijuana industry.