Did you know that the licensing of medical marijuana dispensaries in Maryland has begun? There are only a handful of licensed dispensaries at this time, including one in Montgomery County. Besides dispensaries, Maryland’s budding medical marijuana industry includes growers and processors. Even though the industry is just taking off, there is growing support for legalizing marijuana for recreational use. This is evidenced by recent bills introduced in the Maryland General Assembly that focused on establishing a tax for cannabis sales. Besides increasing tax revenue for states where marijuana is decriminalized, there also seems to be a phenomenon of high home values.
If Maryland does decriminalize marijuana, it could be a potential source of tax. The San Francisco Chronicle (6 lessons from legal pot in Washington and Colorado; sfchronicle.com; September 30, 2016) pointed out that the state of Washington has had a windfall since legalizing pot. It was reported that Washington collected $135 million for the fiscal year 2015 and $186 million for the fiscal year 2016. They were expected a fifty percent for the fiscal year 2017. And that is just on the excise tax on pot products, and doesn’t include the collected sales tax.
About those high home values…
Colorado and Washington state have realized a significant housing boom since decriminalizing marijuana. Washington DC’s housing market has been buzzing along quite nicely as well. While the surrounding suburbs’ housing market has slowed, GCAAR’s October stats (gcarr.com) reveal that Washington DC’s home sales have surged about ten percent year-to-date and average home sale prices grew about four percent! Recent empirical studies have validated the housing-marijuana relationship.
One recent paper that provides such evidence was presented at the 2017 Annual Meeting of the Allied Social Sciences Associations held by the American Economic Association. Cheng, Mayer and Mayer (The Effect of Legalizing Retail Marijuana on Housing Values: Evidence from Colorado; working paper, 2016) measured the “benefits and costs” of legalizing marijuana expressed in home prices. They concede that although marijuana legalization is controversial, there are some benefits. They determined that there is a causal effect such that Colorado’s retail marijuana law implementation was instrumental in its recent housing boom. They concluded that implementing a retail marijuana law will give home prices a bump of about six percent. They also found that high home values and inventory are mutually exclusive, such that the increase in housing demand did not affect housing supply.
Are high home values worth the affects of decriminalizing pot? High home values is not everything.
Regardless of high home values, decriminalizing marijuana is not all peaches and cream. Not to be a buzzkill, marijuana can also negatively impact real estate too. Amy Hoak’s reporting lists a number of issues where legalizing marijuana has adverse effects to housing (5 ways marijuana legalization affects real estate; MarketWatch.com; November 25, 2014).
A major issue Hoak points out concerns federal law. Regardless of any state or local retail marijuana law, the Feds still consider marijuana verboten. Properties (commercial or residential) that are associated with marijuana related activities and can be subjected to civil asset forfeiture. Another issue is financing properties related to the marijuana industry. Federally chartered banks conform to federal law and won’t lend on these properties.
Hoak also points out issues with properties where marijuana is processed, sold or used (commercial or residential). There has been a significant increase in property explosions in states where marijuana has been decriminalized. The explosions are likely due to processing marijuana into hash oil, a process that involves butane. Mold is an issue where marijuana is grown, because of the large amounts of water used in the process. Much like cigarette smoke, marijuana odors can permeate walls and be very difficult to remove. Even if a lease forbids it, residential landlords can have problems when tenants grow, process, and smoke marijuana in the home.
Regardless of the increased home value phenomenon associated with retail marijuana laws, some homes can be difficult to sell. High home values aside, homes that have been “tainted” with odors or mold can languish on the market, even if they are in prime locations. Finally, Hoak pointed out that people are not keen living next to properties involved in the marijuana industry.
Copyright© Dan Krell
Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.