The Legal Marijuana Market Could Reach $11B Within Years: Is Now the Time to Invest?

by | BiggerPockets.com

Tempting opportunities beckon real estate investors looking to capitalize on new markets for legalized marijuana, yet many have held back.

They’re stirred by earnings estimates, like the one from the Oakland, California-based ArcView Group that claims the U.S. market for legal pot could increase to $11 billion over the next few years. To revive a timeworn phrase: “There’s gold in them thar hills!”

So far, though, investors have hovered at the toe-dipping stage in this neonate market. It’s likely because of the nontraditional risk. Marijuana is still illegal under federal law. Security and transportation present unique hurdles, and the cash-heavy aspect of the business gives bankers and accountants pause.

Well, grab your capital and get ready to be a “ganjapreneur”! The first real estate investment trust (REIT) with medical cannabis property investments has been listed on the New York Stock Exchange (NYSE).

Marijuana REIT IPOs

San Diego-based Innovative Industrial Properties will focus on lease-back arrangements with long-term, triple net agreements. Anyone with capital to spare and a penchant for getting behind a budding industry can let the professionals at this handle the frontline risks.

The company’s first reported purchase was for 37 acres in Orange County, NY from owner PharmaCann. The property hosts a 127,000-square-foot facility already occupied PharmaCann, according to CNN Money, is licensed to grow and dispense medical marijuana and which will lease back the property.

Innovative works only with state-licensed medical marijuana growers. (No word yet whether agreements could someday expand to growers licensed to produce recreational marijuana.)

Innovative’s stock (IIPR) began trading at $20 a share on Dec. 1 with an IPO of 3.35 million shares. Principals are well-versed in real estate acquisition, and among them, have previously raised capital and financial real estate for REITs with a total capitalization of more than $30 billion. Executive Chairman Alan Gold was president, executive chairman, and CEO at the former BioMed Realty Trust, Inc. from 2004-16. Three other former BioMed execs are now on Innovative’s team.

Will the Pot Trend Continue to Grow?

Of course, the investor who welcomes the strength of an REIT must still be willing to ride out any controversy that could impact stock, but signs are pointing to wide acceptance of medical marijuana.

The IPO came just weeks after the Nov. 8 general election, in which voters in numerous states approved new measures for medical and recreational marijuana use. Medical marijuana is now legal in 28 states and the District of Columbia.

Innovative Industrial Properties is betting on that trend to continue, and it wants to be a big player in the market. Anyone looking to get in on the action now has an investment vehicle that comes with the blessing of the venerable NYSE.

[Disclosure: Author has purchased stock in IIPR but is receiving no compensation to promote the company.]

Investors: Would you put your money into marijuana-focused REITs (or other real estate investments)? Why or why not?

Let’s discuss in the comments section!

About Author

Elizabeth Gibson

Elizabeth has captivated both marketing and news audiences with her award-winning writing. Currently managing content for ezLandlordForms she's passionate about evolving data anaylysis and applications in market research and improved customer experience.

12 Comments

  1. Richard Anderson

    As Elizabeth mentions marijuana is still illegal federally. With that said, investors will want to do their due diligence on their bank’s policy on the marijuana industry. Banks constantly close customer accounts shown to have financial interaction with pot companies. Financial companies, specifically banks, are stuck between a rock and a hard place right now. Especially if they carry a national charter. They are trying to meet the needs of their customers while staying on the good side of federal regulators.

  2. Christopher Neeson

    Easier to invest directly with companies growing and selling that are gaining the higher profit.

    Pharmaceutical divisions are doing fairly well.

    Would I choose anymore stocks over real estate though…… um no , stocks just don’t have the growth or cashflow.

    I’m glad my wife did mutual funds, and 401ks when she did. But we currently maintain those assets with minimal growth. They make great reserves when acquiring income properties.

    We move away from any ties to the stock market though. You just don’t see 600% gain on your money like you do in real estate.

  3. John C. Carlson

    I can speak to how real estate that is going to be involved with “growing” is exploding in value. I’m a commercial appraiser & have appraised three industrial buildings in Adelanto, CA that are located in “grow zone” industrial areas. Example: appraised a 48,000 SF total, (4) 12,000 SF metal buildings that sold for $4 million in March 2016. Also appraised two other smaller buildings from March to May. The 48,000 SF building would have sold in 2015 for $1 million to $1.5 million.

    Rents have exploded also. The building I noted above would have rented for $0.45 PSF – now these buildings are renting for $2.00 PSF. No MJ has been grown yet, Investors are lining up buildings in which to grow.

    Desert Hot Springs is another area where MJ buildings has taken off. Haven’t appraised anything from DHS yet, but some of my comparables came from there.

    When I appraised the Adelanto buildings early in the year, there weren’t many other areas where MJ could be grown. Now that other cities, especially in the Coachella Valley have jumped on the bandwagon, I wonder if pricing will remain as high.

  4. Stephen S.

    Real investors aren’t gun shy and cautious in the ways which are suggested here. Rather they are investing where the real end-game profits are going to be made. As soon as all the little guys take the risks and get the pot business somewhat sorted – Big Tobacco will jump in with mega cash and put them out of business. The big tobaccos are uniquely positioned and have all the infrastructure already in place.

  5. I have been a criminal defense lawyer for 38 years, but now retired. I don’t understand how anyone could invest in this since marijuana is illegal under federal law. Our US Constitution has a “Supremacy Clause” that makes federal law supreme in case of conflicts in the law. It’s probably a matter of Obama’s Justice Dept not enforcing the law. However, Trump will be President as of January 20, 2017, and things may change dramatically. Trump’s Justice Dept may just enforce the law. If so, all investors stand a chance of losing their investments due to investing in an illegal enterprise. I would tread carefully on this. At least wait and see.

  6. Gayle Chapman

    I’ve already invested in other Marijuana Industries on the stock exchange, and found it to be quite profitable. Anyone with a penchant for investing should do a little homework and see how much they would like to invest. A measly $1000 investment spread across 6 companies has already net me over $1000 in unrealized gains. And though the market is volatile, I’m keeping my money in for the long haul and will invest more shortly. Cannabis is good for so much more than pharma and fun. One need only study the history of it and why its competition worked hard to make it illegal in the first place. It’s time for the prohibition to end. Its a great industry and it needs to be supported.

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