Green Zones and Real Estate Prices Explained
Cannabis Green Zones and Real-Estate Prices Explained
In Sacramento and most counties in California, they ONLY allowed licenses to get their CUP (Conditional Use Permit - Permit that allows that specific address to do a specific task or service) only in a specific zone called a Green Zone. Basically, a geographical monopoly, which is very rare especially in America. Sacramento allowed 2 separate areas that all the distribution, delivery, manufacturing and testing companies could be located in. Only the 30 storefront dispensaries were grandfathered in location wise besides a few cultivations and handful of companies.
The government chooses an area of the city that has low property value, not many uses and is usually industrial. The city planners know once they designate the area as a green zone, it will bring massive interest and raise the property value as it’s the only place people can conduct cannabis businesses. Property values increase overnight once a green zone map is out and landlord learns their property is within the zone. Landlords are usually told by real estate agents what it is worth since they get 3% and the higher the sold price the more they make. One example of instant price increase is my first landlord. He bought his 5,000 sq foot building for a little over $600,000 due to Sacramento had not established the zone yet. Once the zone was established the property more than doubled in value. Renters are easy to find and buyers also. Once my landlord applied for a CUP and proved it was a cannabis friendly area then it went up even more. The icing on the cake was when he got a permit for cultivation approved and awarded it to himself. It took over a year and $100,000's but when he was done, he sold the license for over 2.5 million dollars. All because they knew for a fact that they could start operations immediately and not have to worry about any politics. In 99% of permits, you're not guaranteed that you will even be awarded the permit. So, you could spend literally millions of dollars and not even get anything, CRAZY right! That is why companies are willing to pay so much over value for a permit that is already awarded. It's also why renters will pay a way higher than normal rent. Once a property is awarded a CUP, then the company knows it will be able to run and doesn’t have to worry.
Usually a renter will come into a totally vacant empty lot and spend hundreds of thousands of dollars on a building they don't even own. The usual rate increase is 3% per year also. So you bring their property value up, pay insurance, pay rent and pay an increase in rent. It's one of the huge reasons legal places have higher costs. It’s a fixed cost that will only go up and never disappear unless the company spends huge amounts of money upfront to save a little in the long run. The real estate owners are the real winners in the cannabis industry! It's safer, but takes longer to get your money back. Any company that also owns their facility will have a leg up on all their competition.
A picture of an actual property in Sacramento that is preaproved for CUP and up for rent. As you can see easily there is nothing there. No ADA compliant bathroom, electrical outlets, and won't be cheaper because its without.