In our ongoing look at how the legalization of marijuana is impacting the real estate market in different areas across the country, today we’re putting the spotlight on Traverse City, MI. Michigan legalized recreational marijuana at the end of 2018, causing a “mad race among prospective marijuana businesses that’s having dramatic effects on the local commercial real estate market,” said The Ticker. “With new marijuana rules still in the early stages, fierce competition for properties is causing prices to soar and giving sellers significantly more leverage.”
Part of the reason for the ultra competitive environment is the lack of inventory. But this isn’t simply an availability issue; it’s also a licensing issue. “In Traverse City and Acme Township, only a limited number of licenses are available for certain types of medical marijuana businesses—and only within certain districts,” they said.
“While Traverse City has unlimited licenses available for grow operations, processing facilities, testing laboratories, and secured transportation companies, the city capped dispensary/retail store licenses at just 13—with a lottery scheduled for May 3 to distribute them. Acme, which held its first lottery last year, had 20 total licenses available: five each for grow operations and processing facilities, three each for testing laboratories and secured transportation companies, and four for dispensaries/retail stores.”
Limitations on what type of properties can be used for marijuana-related activities, and where they can be located, is exacerbating the issue. The “potential one-time shot at getting licenses,” in concert with “a requirement that applicants secure a location for their business before submitting paperwork—has sent entrepreneurs scrambling to snap up eligible properties,” they said.
Those whose numbers come up are, quite literally, winning the lottery. After all, the stakes are exceptionally high. The marijuana industry in Colorado has brought in $6 billion since recreational use was legalized in the state, generating hundreds of millions of dollars in tax revenue and making millionaires out of many of those in the industry’s inner circle—and those who have properly navigated the real estate environment.
Traverse City property owners are already reaping the benefits. “Everything has gone off the charts with value,” Tom Krause of Krause Realty Solutions told them. “We’ve had people from California to Colorado flying in. We’ve done seven deals so far…four of those were for dispensaries, and a couple were for growers.” One of those deals was for a property owned by Krause himself; “While the sale was being finalized, he received another offer that was $200,000 higher,” he said to The Ticker.
The lack of available properties in high-target areas is creating a speculative environment in which “buyers are not just targeting what’s for sale, but approaching owners of eligible sites and making offers. “They’re enticing them to sell with high prices…it can be a 50 percent premium to purchase a building above what the market rate would be,” they said. The Ticker added that other sellers are accepting offers from multiple entities on a property to insure there will be a deal with a licensed buyer.
Despite the potential profits for sellers now and potential windfall for buyers later, disagreements between state and federal laws around marijuana are creating some challenges that give cash buyers a leg up. “Buyers face the most risk—particularly mom-and-pop businesses and individuals without major financial backers,” they said. “Banks typically won’t touch marijuana deals since the substance is still illegal federally, so buyers are on their own for financing.”