Is marijuana going to be a game-changer for Sacramento real estate?
Let’s talk about that, and let’s try not to argue. Despite California’s reputation for progressiveness, marijuana is still a polarizing topic. After all, Proposition 64, which made recreational marijuana legal for adults throughout the state, only passed by 56 percent. This means nearly 1 out of every 2 voters did not approve. Or in other words, half of everyone you meet might have a different opinion than you.
The City of Sacramento does allow for the cultivation of commercial cannabis in certain areas, deemed ‘green zones,’ making it the wild child sibling of the county.
No matter your opinion, let’s take a look at how the cannabis industry is beginning to take root in Sacramento’s regional market. The goal here is to pay attention to the real estate trends happening around us.
You might think we’re going to become Potville USA since recreational marijuana is now legal in California, but local cities and counties have the right to create their own rules. To date, most throughout the greater Sacramento region have said yes to residents having the right to grow recreational marijuana inside their homes, but have largely said no to commercial cannabis cultivation. The City of Sacramento does allow for the cultivation of commercial cannabis in certain areas, deemed “green zones,” making it the wild child sibling of the county.
So, the legal marijuana industry isn’t going to look the same everywhere. In some places, it won’t even exist.
Did you know that law enforcement officials have said that more than 1,000 illegal residential grow houses may exist within Sacramento city limits alone? They are illegal because the city government does not allow commercial production on residential properties. But this is a reminder that this industry is already happening all around us.
While University of the Pacific projects the cannabis industry can create 20,000 jobs in the greater Sacramento region, we have to remember it’s a stealthy business. There’s potential to see explosive growth in this industry, but most legal grows will be in industrial locations off the beaten path of neighborhoods. Sacramento city officials hope many of the illegal residential grow houses will go legit and move to the commercial sector. We’ll see.
One of the most obvious post-election impacts we’re seeing in Sacramento has been increasing values and rents for industrial properties within designated green zones within city limits. Brian Jacks, a commercial broker, tells me standard industrial rents in the Sacramento area range from $0.50-$0.70 per square foot per month, though in some cases properly-zoned marijuana cultivation facilities, located within city limits, can command up to $2 per square foot per month or more.
On the purchase side, Realtor Tina Wilks says buyers need to have cash or at least 50 percent down to obtain a hard money loan. Understandably, we are currently seeing a price markup for commercial properties located in areas where commercial cultivation is legal.
Last year, before Prop 64 even passed, there was a “green rush” in Yolo County. Investors from all over the U.S. flooded the Capay Valley gobbling up 10-plus acre parcels suitable for outdoor cannabis cultivation. Buyers paid top dollar for these vacant lots until October 2016, when cannabis farmers could no longer obtain a permit from the Central Valley Regional Water Quality Control Board, which was a prerequisite for obtaining a cannabis cultivation permit.
I recently spoke with a homeowner in Fair Oaks who was hoping to sell his one-fourth acre lot to a marijuana grower. He was excited about his property now being worth more because of the new state law, but there were two big problems.
First, Sacramento County does not currently allow commercial cannabis cultivation. So, owning a parcel of land or industrial building in the county doesn’t mean much since zoning prohibits marijuana growers. Second, the big growers aren’t buying tiny postage stamp lots — especially in residential neighborhoods.
Just because recreational marijuana is legal in California does not mean everyone can cash in and get rich. It all comes down to having the right zoning and location for legal cannabis cultivation.
Most surrounding cities and counties have been adamant about not allowing dispensaries or commercial grows, but for how long? If the City of Sacramento does eventually generate $18 million-$20 million in annual revenue, as Councilman Jay Schenirer has publicly said is possible, don’t you think that’s going to put pressure on the rules to change in other places? Right or wrong, money has a way of altering people’s minds.
Moreover, if the cannabis industry has explosive growth in the city of Sacramento, can you imagine an eventual moratorium placed on dispensaries and commercial operations within city limits? Couldn’t this also put more pressure on other areas to allowgreen zones?
Some say Sacramento is primed to be an epicenter for marijuana cultivation, like Denver, Col., which has over 4.2 million square feet of industrial space set aside for growing cannabis. Nobody has a crystal ball though, so it’s impossible to say how exactly this trend will unfold.
Is all of this good or bad? Well, that depends on who you ask.
Sacramento City Council has outlawed outdoor cultivation by legal cannabis patients, citing public safety and smell concerns. Now, added to this ban is the classification of cannabis cultivation as wasted water: Patients are no longer allowed to water legal, indoor plants, yet there is no penalty on those growing equally-legal crops hydroponically indoors, like tomatoes or herbs. What legal right does the council have to single out this particular crop when cultivated in accordance with local and state laws?
Elections matter. The people have spoken. And marijuana — more appropriately known by the less pejorative label, cannabis — is now legal for adults in eight states, including California, and for those with medical needs in 28 states. That means the majority of Americans now live in states where cannabis is legal in some form.