The marijuana industry is a quickly growing industry throughout the U.S. Currently, there are 30 states that have legalized marijuana. There are many investors that have already decided to invest in properties with marijuana tenants and many are thinking about doing so. While sitting in on a webinar hosted by SIOR we learned about the specifications that marijuana user buildings require and limitations that they face. Our hope is that we can provide some helpful information for those of you wondering about the marijuana industry and those of you who have considered making investments in these properties.

The ballot issue for recreational marijuana was first approved in Colorado and Washington State in 2012 with the first dispensaries to be opened in 2014. In 2016 the total revenue for marijuana sales was at $7 billion. It is expected that by 2021 revenue will increase to $25 billion. In Washington State the revenue for 2017 was $319 million compared to $189 million in 2016. In Colorado alone, the revenue was $1.5 billion for 2017.

Rents tend to average 3x more for a marijuana user than any other user because of the high risk involved. In 2013, Denver rents for a user building were around $40-$50 per square foot which later increased to around $65-$70 per square foot. Currently, rents can be $100 and above per square foot. These numbers will vary from city to city based on market conditions, but you can note that they are relatively high.

There are three main types of marijuana facilities; cultivation, manufacturing/distribution and retail. Cultivation is the largest and can be indoor or outdoor in states that have a more controlled climate. In states like Washington and Colorado, there are going to more indoor cultivation facilities. These facilities are also sometimes combined with manufacturing/distribution facilities, meaning they grow and process product in the same building. These facilities are commonly built like greenhouses due to efficiency and quality of product. They require special lighting and HVAC. Ceilings are best at a minimum of 14 feet high. The buildings have to meet special odor requirements which sometimes means using exhaust fans with carbon filtration. Properties with marijuana tenants are hard to turn over to a new tenant of a different use due to the highly specialized buildout.

It’s important to think about financing for a marijuana tenant. Since marijuana is still federally illegal, this makes financing difficult. Loan interest rates tend to be around 8-20% and finding a lender can sometimes prove to be strenuous. It is crucial for an investor to understand the tenant’s capital structure, since it is rather expensive to meet all the specifications required to have a legal and efficient marijuana facility.

Investing in a marijuana tenant can be a financially smart decision especially when that tenant stays in the building for a long period of time and can find adequate financing. There are many points to take into consideration when choosing to invest in a marijuana tenant, and we hope that this information helped. Would you choose to make this investment?