Marijuana Legalization and Its Impact on Small Landlords in New York
The cannabis legalization movement has come a long way over the years, with over half of the states throughout the country legalizing marijuana in some form or the other. The State of New York has finally legalized cannabis for recreational use in 2021 after several years of failed attempts and stalled efforts.
Cannabis legalization has a significant impact on several aspects of each state. New York City’s real estate sector could go through a significant shift in favor of smaller landlords due to the developing situation as recreational marijuana comes into full effect.
At writing, Federal law still considers marijuana an illegal substance. It means that any properties that have loans or mortgages from federally chartered banks are effectively barred from renting to any businesses affiliated with the use and sale of cannabis. Landlords who outright own their properties or only engage in business with local banks could be well-positioned to benefit massively from the situation.
Cannabis Legalization and its Impact on Landlords
Institutional property management firms and landlords mostly own properties that are tied up in commercial mortgage-backed securities. The involvement of the more significant landlords with federally backed mortgages effectively prohibits these entities from renting their space to any businesses like weed dispensaries and other organizations involved with the use or sale of legal marijuana.
Smaller landlords tend to have far more flexibility in the matter due to the legalization at a state level. Such landlords are likelier to have loans from state-chartered banks that do not have to face any restrictions regarding doing business with cannabis-related companies.
The legalization of marijuana for recreational use throughout the State of New York is slated to provide a significant boost to the state’s economy as cannabis businesses emerge to meet the high demand for dispensaries and other cannabis-related businesses. Many smaller landlords are more likely to take on the risk associated with regulatory concerns surrounding the legal marijuana industry. The key concern for these landlords is that the tenants pay them market rates or higher rent.
The trend is not just something that is expected to be seen limited to New York City or the State of New York. Larger landlords are effectively staying out of the cannabis industry throughout the country due to the federal status of marijuana as a controlled substance.
Pintchik Associates is one such real estate firm slated to benefit from the development. The firm is a landlord for Be. Brooklyn, a medicinal marijuana facility located in New York. The company’s head said that renting to the business was akin to renting to any other tenant. Like Pintchik Associates, other smaller landlords have to contend with far fewer regulations, both internal and external, when it comes to renting property to cannabis businesses.
Larger landlords have plenty of issues to deal with internally, such as answering to a board of directors and other internal regulations. Combined with external regulations due to federal-level laws surrounding the legality of cannabis can raise issues and create hindrances for larger landlords to do business with companies in the burgeoning industry.
The Office of Cannabis Management
The Office of Cannabis Management was established when the bill to legalize recreational marijuana was passed. The five-member OCM will be responsible for establishing the rules and regulations for medical- and recreational-use marijuana under the State Liquor Authority. The regulatory body will also take on the responsibility for providing licensing to marijuana businesses like producers, distributors, retailers, and other businesses related to cannabis.
Additionally, the regulatory body will be tasked with creating a program that offers loans and grants for people from communities who have suffered from the impact of the war on drugs that want to partake in the growing industry.
Under the new laws, cannabis can be consumed in “cannabis cafes” throughout the city as long as the establishments are not within 500 feet of schools or 200 feet of places of worship. The law also prohibits any single company from controlling its entire supply chain from growing to retail operations. It means that a business with cannabis growing operations cannot have any financial interest in a marijuana dispensary.
Much more remains to be seen about the number of licenses that will be made available once the industry kicks off.
Wrapping it Up!
The legal cannabis industry still has a long way to go before it can come into full swing. The prerequisite for cannabis sales in the State of New York is that all the marijuana sold for recreational and medicinal use must be grown and processed within the state. It means that cannabis dispensaries looking to capitalize on the already established growing and processing operations in other states that have already legalized cannabis cannot rely on transporting the goods to the State of New York.
Establishing and effectively growing the operations for growing and processing marijuana for businesses in the State of New York will take some time. So far, it seems that the earliest we might see retail sales of recreational cannabis begin in New York could be as late as the end of 2022.
Recreational marijuana legalization in New York is expected to create thousands of new jobs, and it is expected to generate roughly $350 million in tax revenues for the State of New York when the industry becomes fully operational.
The broader impact of cannabis legalization on the real estate industry in New York City and the State of New York could be significant.
If you are interested in learning more about how the real estate industry in New York and whether investing in real estate could be a wise option for you, get in touch with Victor Jung. He can help you figure out the best approach to investing in real estate in the State of New York and beyond. Click here to learn more.
