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One Election Day Winner No One Contests: Recreational Marijuana

The final outcome of the major federal elections was still disputed heading into Wednesday evening, but one clear message emerged from several statewide votes.

“Cannabis won big last night,” Subversive Real Estate Acquisition REIT CEO Richard Acosta said.


Ballot measures passed in New Jersey, Arizona, South Dakota and Montana to legalize the adult use and sale of recreational cannabis, while Mississippi and South Dakota (in a separate measure) legalized medicinal marijuana for the first time. Once each state’s program and regulations are set up, more than a third of the total U.S. population will be able to legally buy cannabis.

The expansion of legal marijuana inevitably leads to increased demand for retail and industrial space. With how widespread the legalization of medical marijuana has become and the maturation of the recreational market in states like Colorado, California and Illinois, experienced investors are likely to be ready for these new markets to open.

“In Colorado, [recreational marijuana] started with local hippies out of the gate in 5K SF warehouses, and those people started to get bought as people were realizing what the federal government would do and not do,” Colliers International National Director of Research Steig Seaward said. “And as [a crackdown] never materialized and certain protections materialized, then you started to get bigger, better-funded companies coming in to acquire businesses and run more professionally. 

“My guess is that over the past few years, that level of investor is reaching out everywhere, so I don’t think you have to be local to New Jersey to open up shop there.”

While even the much smaller populations in South Dakota and Montana will draw national investor interest, WBS Equities President and CEO Wendy Berger told Bisnow, the most impactful legalization measure was undoubtedly in New Jersey.

“Being next door to the largest city in America, that will bode well in terms of [New Jersey’s] demographic reach,” Seaward said. “So you’d see significantly amplified efforts in New Jersey when compared to Arizona, which is next to where you can already get it [without a prescription] in Nevada and California.”

If New Jersey draws in the customers from New York and Pennsylvania that many are predicting, that will place immediate pressure on those states, both of which have governors in favor of adult-use recreational legalization. Every day that New Jersey can sell cannabis legally is a day that consumer spending and tax revenue flow in from neighboring and nearby states.

Inception REIT's Richard Acosta and CannaRegs' Amanda Ostrowitz

“New Yorkers will soon have the option to make an easy trip across the river for legal access — building on the wave of New Yorkers who have traveled to Massachusetts to buy cannabis in recent years — and continuing the outflow of dollars that could instead be cannabis tax revenue that New York could use to rebuild communities in our state that have been devastated by the marijuana arrest crusade,” Drug Policy Alliance New York State Director Melissa Moore said in a statement.

Every source queried by Bisnow for this article agreed that substantial pressure is now on for New York, Pennsylvania and Connecticut to legalize recreational cannabis. Though Arizona promises to be a large market for the product as well, its neighbors in California and Nevada have already established their adult-use markets. But unlike with retail goods, the robust distribution hub in California’s Inland Empire can’t serve Arizona cannabis customers. 

“Every state essentially has a moat around it, so you need to build entire, redundant supply chains over and over again,” Berger said. “The concept of multi-state distribution does not exist due to federal [prohibition].”

The need to build more cultivation and production facilities is one of two limiting factors on the speed and scale of the rollout of the adult-use market, the other being every state’s different process and mechanisms for overseeing, regulating and taxing the business. While some operators have already been preparing for a long-predicted legalization in New Jersey by buying and building facilities, the slow pace at which medical licenses were handed out prevents a massive wave of development from hitting all at once.

“That’s been the challenge in many states that have gone legal, the ability of government agencies and their regulatory bodies to process approvals and licenses quickly enough to meet the immediate demand,” Treehouse REIT President and CEO Ray Lewis told Bisnow. “It’s challenging because there are a lot of competing interests, and they want to get it right, so they move slowly.”

Lewis cited Florida and Nevada as states that managed to get their adult-use operations online within a year of passage, but he claimed both states, as well as Illinois, which was slightly slower to implement its operations, have dealt with persistent supply shortages ever since.

“When licenses are granted, it doesn’t take that long to open a dispensary; those things can be done in a matter of months,” Lewis said. “But a cultivation facility is a much more capital-intensive project and a more complicated project to design and build. That can mean more than a year in between obtaining a license and being able to break ground and to get your property up and running, to say nothing of going through a couple of grow cycles to let your crops mature.”