Historic movements take time. And that is a central theme of the process to legalize cannabis in the United States. After more than 100 years, the struggle to normalize the industry moves ever closer to reaching its goal. But there remain legal obstacles to creating an efficient modern industry that federal and state governments need to address.
One of the biggest challenges for the industry involves commercial real estate. The booming sector not only occupies the corner shop in the many states that have legalized cannabis for recreational or medical purposes, but also uses other commercial properties in every phase of product development. Industrial spaces and farms are used for cultivation, and warehouses store the product before it is shipped to consumers.
“The commercial real estate industry in the United States is dealing with a 100-year swing of the cannabis pendulum related to legalization, regulation and social consumption acceptance.”
When will the federal government take action to facilitate cannabis legalization and settle the growing conflict between state and federal regulations on cannabis? Federal legalization is especially important in the case of cannabis companies using commercial real estate and for those real estate professionals that may be involved with cannabis projects.
The U.S. has a long history of cannabis use. It’s easy to forget that marijuana was not illegal until the early 1900s. The medicinal uses of cannabis have been known to Europeans and Americans since at least the 1830s, when an Irish doctor named Sir William Brooke O’Shaughnessy documented early uses for cannabis extract.
In the first half of the 20th century, anti-cannabis movements evolved and gained strength. Between 1916 and 1931, 29 states outlawed marijuana use. According to the History Channel, the Marihuana (sic) Tax Act of 1937 essentially banned the drug nationwide. By the 1950s, marijuana was increasingly criminalized. In 1970, it was classified as a Schedule I drug under the Controlled Substances Act (CSA), meaning that marijuana was designated among the most dangerous and addictive substances.
Legalization gains support
Over time, however, attitudes changed. By the 1990s, the hysteria surrounding cannabis had dissipated and the medicinal uses of marijuana were gaining more acceptance, with five states passing laws allowing the use of medical marijuana, including California. In the 21st century, grassroots activist organizations began to make progress toward lifting the prohibition of cannabis at the local and state level.
These groups slowly convinced the general public that the dangers attributed to cannabis had been exaggerated. Various research and medical studies from around the world began to reveal that cannabis was, for the most part, not only harmless but appeared to have numerous medical benefits for a wide range of diseases and ailments. In 2017, U.S. Sen. Cory Booker introduced legislation to legalize marijuana nationwide. The New Jersey Democrat’s bill did not become law, but it was a sign of how far the nation has come in its attitude toward cannabis.
Five years later, the Pew Research Center reported that 59% of U.S. adults surveyed said that marijuana should be legal for medical and recreational use for adults, and another 30% said that it should be legal for just medical use. Of those surveyed, only 10% said that cannabis should not be legal in any form.
Today, cannabis is fully illegal in only five states. Medical use is legal in 37 states and the District of Columbia (D.C.) and 24 states and D.C. permit recreational use, according to a report from DISA Global Solutions. The industry supports more than 428,000 jobs and legal cannabis market sales are expected to reach nearly $40 billion this year. There are now more than 12,000 dispensaries located across the nation.
The cannabis industry, however, doesn’t just use commercial real estate for dispensaries, it also uses a substantial number of industrial spaces for cultivation. Growers rely on specialized facilities with exacting standards and sophisticated watering and lighting systems to ensure crop yields and quality. They also utilize warehouse space and storage facilities.
Commercial conflict
The commercial real estate industry in the United States is dealing with a 100-year swing of the cannabis pendulum related to legalization, regulation and social consumption acceptance. The conflict between federal and state cannabis legalization has many indirect consequences for various industries, including commercial properties.
As cannabis real estate projects become more common, the likelihood that a broker’s clients will come across such deals continues to increase. There are various areas of the commercial real estate industry that are currently impacted by the conflict between federal and state cannabis legalization. Three primary risk categories include commercial real estate property management, lending and servicing, and real estate insurance.
All three of these risk areas are critical for real estate professionals, owners and investors to understand. Property management, lending and servicing, and insurance for commercial real estate each involve various aspects of federal oversight (directly or indirectly) that could have regulatory conflicts or consequences when related to cannabis projects.
Brokers should have their clients consult with attorneys and regulatory experts when it comes to working on cannabis projects. Whether it relates to handling funds or rental payments from a cannabis tenant or servicing a mortgage on a property with a cannabis business on-site; each of these interactions can be viewed by regulatory agencies with varying degrees of participation in the regulated cannabis industry. Brokers need to do their homework and have a complete understanding of local laws and the risk and rewards of choosing to participate in such a project, so long as cannabis remains federally illegal.
Working with government
At the federal level, the movement for legalized and regulated cannabis is playing out through all three branches of government. The judicial branch is hearing new court cases regarding the classification of cannabis under the CSA that could end at the Supreme Court.
Cannabis lobbyists are pushing to have marijuana reclassified by government agencies to a less restrictive category. Biden administration officials are also reviewing whether cannabis should be removed from the Schedule I drug category. A recent report from the Department of Health and Human Services concluded that cannabis has medical uses and that the Drug Enforcement Administration should place it in Schedule III of the CSA (essentially meaning that cannabis has not been proven to have physical dependence characteristics).
The delisting of cannabis also would help solve another major problem facing the cannabis industry: normalizing the use of the banking system. Many banks in the U.S. are reluctant or unwilling to work with entities involved in the sale of cannabis, even where it is legal. This is a major headache for thousands of businesses which must operate on a cash basis, which is more dangerous and awkward than using credit systems. Congress has spent years debating various legislative bills that would change the way federal regulatory agencies govern the banking and licensing of cannabis businesses, but the issue is still being debated.
While political pundits, business owners, investors and the public await news from the federal government, activists and regulators within local and state governments continue to move forward with legalization and implementation of state-regulated cannabis programs. The result is an ever-growing green wave of cannabis legalization and regulation across the United States. Many industry experts believe that anywhere between four to 10 new state markets will open to either medical or adult-use cannabis legalization within the next few years, leaving only a handful of hold-out states without some form of cannabis legalization and regulation.
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Historic movements take time. While the process of lifting cannabis prohibition can seem like it’s never ending, change is happening. It is also possible to imagine a future where cannabis is at the center of personal healthcare routines, where people consume a form of cannabis to combat everyday challenges such as anxiety, depression and insomnia.
Who knows? Cannabis use may offer help in combating some of our most challenging diseases and ailments. In the near term, expect to see the legalized cannabis industry contribute to the economic development and prosperity of communities around the U.S. through new real estate development projects.
The struggle for cannabis legalization may well produce an industry that will be among the largest in the country and produce some of the most well-known household brand names. While the battle for cannabis legalization is very real for the industry today, it may be that people look back on this era of cannabis prohibition as just another chapter of ancient history. ●
