Just because marijuana is legal in many states doesn’t mean many residents can grow it in their backyards or even smoke up in their homes. Buzzkill.
Homeowners associations often place restrictions on marijuana, such as barring homeowners from smoking in common areas—or even growing cannabis in their own backyards in some cases, according to a recent report from the National Association of Realtors®. The report is based on a September survey of nearly 3,700 residential and commercial Realtors® across the country.
“Landlords and HOAs are having to think about how marijuana is both used and grown within a home,” says Jessica Lautz, vice president of research at NAR. “[Even though] it’s legal, you might run into issues. … You may have restrictions on your ability to use marijuana in your home or in common areas.”
Marijuana has been approved for medical use in 33 states and Washington, DC. Of those, 11 states and the District of Columbia also permit recreational use. However, marijuana remains illegal under federal law, which categorizes it as a Schedule 1 drug.
Is marijuana giving the real estate market a high in states that permit it?
In places where marijuana has been legal for three or more years, more than a third of Realtors, 36%, said that they’re aware of HOAs having restrictions on homeowners growing the plant in their own (unfenced) backyards; 42% said HOAs have restrictions on growing it in common areas; and 25% said HOAs have restrictions on it being grown inside the home.
The states that legalized cannabis early on are also experiencing a shortage of inventory, which about a quarter of Realtors attribute in part to the more permissive laws. Out-of-state buyers began moving to Colorado when the first recreational pot dispensaries opened in the state in 2014. The state has also been attracting folks thanks to its strong economy, growing tech sector, and outdoorsy lifestyle.
“We saw a huge growth in marijuana properties,” says real estate agent Rona Hanson of NRG Realty in Lakewood, CO. She specializes in the sale of properties where folks can live as well as plant cannabis.
“People wanted to home-grow separate from the house, or in the basement where they could filter the air so it didn’t reach up to the living area,” says Hanson.
But since the state laws have changed limiting the number of plants folks can grow, she’s had more sellers trying to unload their properties than interest from buyers.
It can also be tough to sell a “grow house,” where cannabis has been cultivated. About a quarter of real estate agents reported having problems finding buyers.
“The smell and moisture can sometimes remain in the property,” says Lautz. There can also be electrical wiring problems that are costly to fix.
It’s harder to tell what it’s done for home prices. In states where folks have been allowed to blaze for fun since 2016, 27% of Realtors reported they had seen a decrease in residential property values near dispensaries. But 12% said they had seen the value of such properties increase.
In states where weed was legalized before 2016, 18% of Realtors reported a decline in home prices, whereas 7% reported an increase.
Landlords may be a buzzkill
Renters involved in the marijuana industry also face problems. About half of Realtors reported seeing lease clauses prohibiting tenants from growing marijuana on their rental properties in states where legal and recreational marijuana was legalized before 2016. In states that have legalized weed since 2016, only a quarter of Realtors reported the same restrictions.
Nearly a fifth of landlords refused to let their tenants pay their rent all in cash. Because of its contested legal status, the marijuana industry is primarily cash-based—so many banks won’t accept money from the business. Tenants who derive their income from marijuana are likely to want to use that cash to pay their bills.
“It’s a little too early to tell if there’s a universal decision on whether it’s good or bad for real estate,” says NAR’s Lautz. “There’s no doubt it’s causing some complications.”