[REN #50] Do Property Values Get “High” From Weed?

Do Property Values Get High from Weed - Article Header Image

Going “green” has a new meaning these days. There are more than 50 legislative initiatives nationwide legalizing or decriminalizing medical or recreational marijuana this year alone. Some say legalization is good for the economy and great for real estate values. They cite Denver as an example of success. Is it true?

Why Weed Might Be Good For Property Values?

So far Alaska, Colorado, Oregon, Washington state, and Washington, D.C., have legalized recreational, as well as medical, marijuana for adults And 20 more states have legalized medical marijuana: Arizona, California, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, Pennsylvania, Rhode Island, and Vermont.

Federal marijuana policies haven’t changed much though. According to the Office of National Drug Control Policy “these state marijuana laws do not change the fact that using marijuana continues to be an offense under federal law.”

Now that’s confusing. If it’s legal locally but not nationally, is it still legal?

10 more states are looking to legalize marijuana this year for recreational use including Connecticut, Hawaii, and Michigan. Seven other states considered that legislation this year, but the bills either died or missed their deadlines. Marijuana could also be legalized for medical use in Louisiana, Missouri, North Carolina, South Carolina, South Dakota, and Tennessee.

15 states are also considering decriminalizing marijuana this year. This would prohibit putting people in jail for possession of small amounts of weed. Decriminalizing and legalizing marijuana are not the same thing. Some states that have decriminalized marijuana are not yet close to passing laws to legalize marijuana.

President Obama stated last year that decriminalizing marijuana possession would help boost the U.S. economy by reducing incarceration costs.

Obama told Vice News last March, “You’re starting to see not just liberal Democrats, but also some very conservative Republicans recognize [prohibition] doesn’t make sense, including sort of the libertarian wing of the Republican Party. They see the money and how costly it is to incarcerate. So, we may actually be able to make some progress on the decriminalization side.”

If you care about softening federal laws around marijuana use, this 2016 presidential election could have a big impact. Hillary Clinton has proposed classifying marijuana as a Schedule II drug. According to the Drug Enforcement Administration, it is currently a Schedule I drug, which is defined as having “no currently accepted medical use.”

How Does Marijuana Legalization Affect Real Estate?

Many people look at Denver as a pot of gold, so to speak. For almost three years now, the housing market in Colorado has been booming, but is it due to the legalization of marijuana? Some people think so.

James Paine, managing partner at West Realty Advisors, told CNN Money, “There has been a huge bump in real estate prices due to the legalization of marijuana. It’s massively pushed up raw land and industry prices.”

CNN Money goes on to report that last March, Denver saw a 10% increase of housing prices. This was its second largest ever increase in home prices, and trailing only San Francisco for the highest price gain in the country.

When the state first legalized the use of cannabis, home prices were relatively affordable. Now, they have skyrocketed, especially in Denver. That’s partly due to the economic impact that has boosted the economy. In 2014, Colorado legal cannabis sales totaled $700 million. At the end of Q4 2016, the state expects to collect over $100 million in cannabis taxes.

The average home price there is over $350,000 which may be out of reach for middle class families who want access to the medicine. It has been successfully used for epilepsy and cancer treatment. These people will likely need to move to the suburbs where it’s more affordable.

Regardless of what’s happening in Colorado or other states who are benefitting from legalization, cannabis is still illegal at the federal level.

Landlords and property managers should pay attention to this when it comes to their investment properties. Some real estate investors have decided to ban the use of the plant altogether, in their properties, while others have gone so far as to set up “Bud and Breakfasts” using Airbnb to attract cannabis tourists. ?

But beware. Using cannabis in a rental property may result in violations in loan agreements or other problems with insurance carriers.

According to Realtor.com, as the movement to legalize marijuana blazes through the nation, landlords and property managers may be wondering whether they have the right to ban the substance from their properties.

So far state laws legalizing pot don’t prevent landlords from writing lease agreements prohibiting marijuana on their properties.

Lesley Walker, associate counsel for the National Association of REALTORS® said, “If a landlord does not want marijuana cultivated, grown, or used on the property, the lease should directly address this and state such prohibition. For existing lease agreements, a landlord could consider having tenants sign an addendum that specifically addresses the presence and use of marijuana on the property.”

But it’s all still so hazy, since laws don’t necessarily support such agreements either.

If a state law says no-one can be penalized for using marijuana, does evicting a tenant for violating the property owner’s no-pot policy count as a penalty? Some housing experts say state courts are likely to say yes, so landlords and property managers need to be cautious about enforcing a zero-tolerance policy.

While no state specifically requires landlords to accommodate tenants who want to light up at home, many states prohibit landlords from discriminating against medical marijuana patients by refusing to rent to them.

Since President Obama signed a bill prohibiting federal funds from being spent to prosecute medical marijuana users last December, this may change the situation in California. Residents with medical conditions in that state have the right to “full and equal accommodations” in housing.

According to June Barlow, general counsel for the California Association of REALTORS®, such protection didn’t necessarily include medical marijuana before this recent federal change. But the new law could lead to medical marijuana accommodations in California.

Even if state laws give landlords the right to prohibit marijuana, if it’s legal, judges may not uphold such prohibitions. But since no legal standards are in place and it hasn’t yet been tested in court, landlords should consider NAR’s advice to write up precise lease agreements.

If your lease agreement bans illegal substances, or “criminal activity” on the premises, that wouldn’t include a ban on the use of marijuana in areas where it is legal under state law. Also, a “no smoking” policy doesn’t really prohibit other forms of marijuana use, such as “vaping” or baking pot into food items.

If tenants sign a lease agreement specifically denying their right to use marijuana in any form on the premises, they have less legal recourse in the future.

So in summary, if you don’t want pot on your property, you will be more protected the more clearly things are spelled out in your lease – but still pay attention to the state’s laws.

Maybe we just need to take the high road and let our tenants toke up in our properties… After all, more than half of the nations 1.1 million REALTORS® live in areas where marijuana is legal, according to NAR.

The only real downside so far is the odor, which can be stronger than cigarette smoke. And in some states, it’s legal to grow up to six pot plants for personal use. Growing requires a high volume of humidity, which can cause mold in units and buildings.

So consider banning smoking and growing inside the home.

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