🌇 Is Cannabis the Next Big Thing in Commercial Real Estate? 🚀

💸 From Dispensaries to Distribution: Cannabis CRE Trends 📦

The cannabis industry is no longer just about dispensaries and growers—it's quickly becoming one of the most dynamic and lucrative sectors in commercial real estate (CRE). As legalization continues to expand across the United States, a new wave of demand is sweeping through industrial, retail, and land assets—and investors are paying close attention.

The Growth of Cannabis Real Estate

Cannabis-related real estate is evolving into a mainstream investment category. From cultivation facilities and distribution centers to retail storefronts, the industry requires a wide range of CRE solutions.

According to recent market data, states that have legalized marijuana—whether for medical or recreational use—are experiencing a significant uptick in real estate activity. Property values near licensed cannabis businesses often increase, and cities are adjusting zoning laws to accommodate the growing industry.

Top Drivers of Growth:

• Legalization momentum in states like Texas, Pennsylvania, and Ohio

• Institutional interest in cannabis-focused REITs and private equity funds

• Tax revenue incentives for municipalities encouraging cannabis commerce

• Limited supply of compliant properties, creating a landlord’s market

Addressing Delinquency Rates in Cannabis Real Estate

While the growth is undeniable, the cannabis CRE sector isn’t without risk. Recent data shows a rise in delinquency rates, particularly in retail properties.

Many cannabis tenants are small businesses that struggle to access traditional financing due to federal banking restrictions. This can lead to cash flow inconsistencies, especially during early-stage operations or market slowdowns. According to Trepp, delinquency rates for cannabis-related retail properties are tracking higher than conventional tenants, hovering around 5-7% in Q2 2024.

However, industrial properties—such as indoor grow facilities and warehouse distribution centers—have remained more resilient due to high demand and lower vacancy rates.

Where the Opportunities Are

Investors and developers are getting creative with how they approach cannabis real estate. Adaptive reuse of old warehouses, distressed strip centers, or agricultural land is creating new value for previously overlooked assets.

Markets like Houston, Denver, Phoenix, and Detroit are seeing increased activity. In fact, with Houston’s flexible zoning laws and industrial space availability, the city is primed to become a cannabis CRE hotbed once full legalization hits Texas.

What It Means for Commercial Real Estate Investors

Cannabis real estate may still be a niche play, but it's quickly proving its staying power. While investors should be mindful of risk—such as banking limitations, regulatory uncertainty, and tenant performance—the upside is significant.

Pro Tip: Partnering with experienced operators and leveraging CRE professionals familiar with cannabis laws can de-risk your investment strategy.

Final Thoughts

As stigma fades and policy shifts continue, cannabis CRE is maturing into a legitimate asset class. With limited inventory, high demand, and strong cash flows in select markets, this sector is not just a trend—it’s a transformational opportunity.

Whether you're a broker, developer, or investor, cannabis real estate deserves a spot on your radar. The next five years could define the future of this high-growth, high-reward sector.

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© 2023-2024 Bill Rapp, Medallion Funds LLC, Director of Capital Advisory