The hot topic at the Institutional Cannabis & Capital Conference in San Jose this week was real estate. While institutional investors are unlikely to invest directly in cannabis production or sale given federal illegality and are somewhat averse to investing in companies operating to support the industry, it was clear that owning real estate and leasing it to operators in the industry is gaining appeal with this group.

The New York Times today ran a story about how demand for industrial warehouses from cannabis cultivators is fueling a boom in real estate across the country, driven by the premium to be earned by landlords willing to serve the industry:

Commercial real estate developers say they have never seen a change so swift in so many places at once. From Monterey, Calif., to Portland, Me., the new industry is reshaping once-blighted neighborhoods and sending property values soaring. In some Denver neighborhoods, the average asking lease price for warehouse space jumped by more than 50 percent from 2010 to 2015, according to an industry report. In the city over all, there are five times as many retail pot stores as stand-alone Starbucks shops.

Last year’s NYSE IPO by cannabis REIT Innovative Industrial Properties (NYSE: IIPR) was perhaps a tipping point. Not surprisingly, CEO Paul Smothers was in attendance along with several others who are building portfolios of real estate leased to cannabis operators, including George Stone and Potter Polk of Kalyx Development, who are rumored to be considering going public. Stone, who is a seasoned investor, was quoted in the article:

There’s capital that is starting to stack up on the sidelines. They’re looking for how to participate, and they’re looking for institutional-grade projects.

George Stone, CEO of Kalyx Development

The article discusses the large capital investment required, the legal risk assumed and the potential of the market being oversupplied down the road that could push prices lower. Still, many are excited by the above-market rents to be earned in the foreseeable future.

If you have never toured a medical cannabis production and dispensing facility, this one minute video included in the write-up will give you a good sense of what a $50,000 dollar a day business looks like.

Read David Gelles’ “A Real Estate Boom, Powered by Pot”: https://www.nytimes.com/2017/04/01/business/a-real-estate-boom-powered-by-pot.html

Published by Alan Brochstein, CFA

Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email