Don’t worry if Mary Jane buys the house next door. She might just make yours more valuable.
Recreational marijuana use becomes legal in January after Nevada voters passed the Question 2 ballot initiative in the November election, joining six other states and the District of Columbia in approving the casual use of the drug. A July study commissioned by legalization advocates and conducted by local firm RCG Economics indicates that approval could lead to nearly 3,300 new full-time jobs and more than $485 million in pot sales by 2024.
Nascent research and a cautious implementation model leave experts differing on whether the industry’s expansion will buttress Southern Nevada’s residential real estate market, but early studies at UNLV and the University of Mississippi indicate that marijuana legalization ties directly to housing appreciation in Colorado.
Led by professor Cheng Cheng, the Ole Miss study concluded in September that areas in Colorado that adopted retail marijuana laws (RML) following state approval of recreational use enjoyed a 6 percent increase in housing value tied directly to that statute. The paper also shows a uniform effect on housing in all price ranges.
Cheng’s research separated legalization’s influence from other factors in Colorado’s booming housing market, which gained close to 9 percent over the past three years.
“We find suggestive evidence that this relatively large appreciation is likely due to RMLs affecting both sides of the housing market: strengthening demand and restricting supply,” Cheng wrote in the study.
Herman Li, an assistant professor in UNLV’s Lee Business School, drilled down a bit further by examining Denver-area housing values in neighborhoods located near dispensaries that converted from medical marijuana to retail distribution. Li looked at houses within one-tenth of a mile from 103 of these dispensaries and discovered an increase in mean housing price from $320,000 in 2013 to $382,000 in 2014.
“We speculate that it’s a different group of people living near that particular amenity,” Li said of recreational marijuana outlets. “We think it’s those types who actually prefer outbidding everyone else to live near these kinds of facilities.”
Li, whose study is ongoing, said his initial findings surprised him. “We actually thought we would find a negative effect. We thought this would be a disamenity and people would be less inclined to live in this area.”
Implementation of recreational cannabis in Nevada will differ significantly from Colorado, though. The Nevada law allows for up to 106 retail dispensary licenses statewide, 80 of which would be in Clark County. Colorado enacted no such restrictions, and as of Dec. 1, 454 licensed retail stores operate in the state.
“There’s a lot of people inquiring just how to get in the industry,” said Phillip Silvestri, a Las Vegas attorney with Greenspoon Marder who represents medical marijuana license applicants. “A lot of people think it’s going to be like Colorado, and it’s not.”
Denver-based real estate investor Jay Rollins of JCR Capital searched unsuccessfully for projects to bankroll as the state passed its medical marijuana licensing mechanism in 2010, before voters passed recreational usage two years later.
“Colorado was a free-for-all, and so anybody could apply (for a license) and pretty much anybody who applied got one, so there were more marijuana licenses than there were Starbucks in Colorado,” Rollins said. “A lot of people thought this was a ticket for a gold mine, and a lot of people lost money on it. What you saw in Colorado was a huge entrepreneurial rush. Anybody who ever got high thought they were getting into the pot business.”
Possessing up to an ounce of marijuana and/or as many as six marijuana plants in your home becomes legal Jan. 1 in Nevada, but the Nevada Department of Taxation will have up to a year from then to develop a full plan for licensing retail stores, and cultivation and production facilities. State Sen. Tick Segerblom, D-Las Vegas, a prominent advocate of legalization, will introduce a bill at the 2017 Legislature to provide for an “early start,” allowing existing medical dispensaries to sell recreational marijuana, under the oversight of the state health division, upon approval by Gov. Brian Sandoval.
For 18 months from the first day applications are accepted, only existing medical marijuana licensees will be allowed to convert to retail sales. Nevada currently licenses 49 medical marijuana dispensaries, and close to 14,000 people in the state held medical marijuana cards at the end of 2015.
That aspect of the legislation could delay any potentially significant effects on Southern Nevada’s housing market until well into 2019.
“To the extent the recreational marijuana industry fosters economic growth, improved residential sales traditionally follow, so from a more generalized perspective, there certainly could be an increase in residential activity,” said Megan Fogarty, a Reno attorney with Holland & Hart who specializes in real estate law. “But based on the limited number of retail stores and licenses permitted in each county, it is unlikely that the recreational marijuana industry would have a widespread impact on residential sales.”
Even if Nevada didn’t see a boost anywhere near that documented in Colorado, just relieving fear that marijuana’s arrival in the neighborhood will crater housing values could prove crucial in forecasting how the Southern Nevada housing market will react to legalization.
“We know the negative isn’t true — that is, the idea that cannabis is going to devalue the housing market where legalization happens,” said John Hudak, deputy director of the Center for Effective Public Management and a senior fellow in governance studies with the Brookings Institution. “We know from Colorado and Washington that doesn’t happen. That was one of the reasons why people said you shouldn’t legalize.”
Provisions of the new law seek to mitigate fear of marijuana’s effect on neighborhoods. For instance, the Nevada law provides a buffer zone that prevents marijuana establishments from being within 1,000 feet of schools and 300 feet of community facilities.
Such a major change involving a substance tied to lingering taboos will cause uncertainty in any case, Hudak said.
“For the first six months, there are going to be people who just aren’t sure,” Hudak said. “There is still tremendous uncertainty and notable worry about what legalization will mean in the short term. Once people see that the sky doesn’t fall, then they’re more willing to take a deep breath and say, ‘This is not an economic loser; maybe this is something we should invest in.’ ”
Such industry projections could be rendered moot by the new presidential administration, though, as Attorney General nominee Jeff Sessions opposes marijuana legalization. State-level approval of marijuana use does not supersede the federal ban of the drug, so Nevada and its fellow weed-friendly states could face a legal battle if Sessions is confirmed and chooses to strictly enforce federal law.
Under the Obama administration, the Department of Justice has taken a fairly “hands-off” approach to enforcement of federal marijuana violations, focusing on an eight-point priority list established in a 2013 memo from Deputy Attorney General James Cole to all U.S. attorneys.
“The Cole memo essentially states that the Department of Justice will not use federal resources to prosecute marijuana activities otherwise legal at the state level, but instead, expect regulation and enforcement by those states that have authorized marijuana use,” Fogarty said. “Whether this policy will continue to be followed in the next administration remains to be seen.”