Just days from reportedly seeing bill C-45 passed by its Senate, Canada is poised to experience the end of a century-long prohibition on marijuana. Lawmakers insist that there will be a transition period of two to three months before legal cannabis sales actually begin. But the real estate industry is already showing signs of unrest in the commercial and residential real estate markets.
Commercial Real Estate Bargains Won't Last After Cannabis Legalization
According to experts, pre-marijuana legalization commercial space is a bargain right now. But after this week, the battle for industrial real estate could get ugly. Experts expect demand for commercial real estate to go up as the number of retail locations gets snapped up to become marijuana stores.
There are so many planned legal cannabis stores that it’s no wonder there’s about to be a run on spaces to sell marijuana to the public. And this goes for all provinces, whether they decided legal marijuana sales will go through the local government or the private sector.
The federal government is letting provincial or territorial governments decide how to distribute legal cannabis. For instance, Ontario (where 40 stores are due to open this year), Quebec, Nova Scotia and Prince Edward Island have given their provincial liquor boards control of retail sales of marijuana. Saskatchewan, with 51 local cannabis permits available to private operators via a lottery, and Newfoundland and Labrador, with their 41 stores, are leaving the task to the private sector.
Demand for Commercial Real Estate Explodes in Alberta
Alberta has determined that no one will be able to have more than 15% of the licences to sell cannabis. This is its attempt to have an even mix of large and small cannabis operations in the province. It hasn’t put a cap on the number of cannabis stores. However, 250 licences are expected to be granted in the first year.
In Alberta, real estate agents dealing in commercial space are in high demand. Future cannabis proprietors are securing spaces to cultivate the plant and retail space to sell their final product. Since the licences were only announced last week, the property rush is just about to begin. But already real estate agents are seeing fierce competition for properties and report that offers are starting to get very competitive.
Licensed producer (LP) Canopy Growth is reportedly already experiencing stiff competition for retail space in urban centres in Alberta. There are bidding wars, aggressive terms and even more aggressive termination clauses. The cannabis giant has more money than others to go after the most lucrative real estate. So even though the province is trying to level the playing field through licences, the real estate rush and the capital it requires clearly tips the balance in favour of the bigger cannabis players and away from those mom-and-pop marijuana outlets.
Canadian Real Estate Association Wants to Ban Cannabis Home Grows
The Canadian Real Estate Association (CREA) is requesting home cultivation rules be suspended for recreational consumers when marijuana is legalized—at least until the government sets out nationwide regulations.
"There's absolutely no question it impacts the value of the home," Michael Bourque, chief executive officer of CREA, stated during an appearance before the Senate's social affairs committee. He added that home cannabis cultivation could also result in mould infiltrating a home. Signs of mould and fungi aren’t always detectable, so it could mean expensive discoveries down the line for homeowners and landlords.
Right now, the federal plan allows Canadians to grow up to four marijuana plants at their residences. Only the provinces of Quebec and Manitoba have placed an outright ban on growing cannabis at home for non-medical consumers. Medical marijuana patients are already allowed to grow at home as long as they’re licensed and registered to do so. A former ban on all home grow-ops was lifted in 2016 for violating patients' charter rights. But recreational cannabis users have no similar rights to grow marijuana plants at home, and that’s causing consternation among real estate agents.
Concerned about potential property damage and effects on home prices, CREA would like the government to amend regulations to stop homegrown cannabis nationwide until provinces can enact local rules. Ottawa is looking for some definitive guidelines that provides residents with guidance on safe home cultivation.
According to CREA President Barb Sukkau, the industry association has heard from homeowners and tenants who are worried about living beside grow-ops and question not only what it will mean for their children’s safety, but also how it will affect their home’s value.
Randall McCauley, CREA's vice president of government and public relations, says they're not targeting medical marijuana patients who are growing cannabis at home, but that they want a better framework for governing recreational home cannabis grows.
In the coming months, we’ll see how the real estate market really reacts to legal cannabis. There are signs already that it’s causing price increases and stiff competition for commercial spaces. Personal homes won’t be left unaffected, but it’s yet to be determined if the government steps in to assuage the worries of the real estate industry thus far.
Photo credit: Tom Thain