Getting high as a kite

The newly legalised marijuana industry in certain US states is raising prices and creating lucrative opportunities for brokers

When was the last time a new industry was created overnight? That’s what’s happening in the nation leading the war on drugs, reports Rachel Novell in our sister title Mortgage Professional America, following the legalisation of marijuana in two states. Newly legalised businesses are expanding and demanding finance – but brokers and lenders risk breaking federal law.

Following Colorado and Washington’s paths, many states are reconsidering their laws surrounding recreational marijuana. Oregon, Florida, Alaska, Hawaii, California, Maine and Washington, D.C., are among those states looking to legalize the drug.  Currently, 23 states and the District of Columbia have some form of medical cannabis-friendly legislation on their books.

But with marijuana still illegal under federal law, getting involved can be tricky and there is no conventional lending source, said Glen Weinberg, chief operating officer at Denver-based Fairview Commercial Lending, a private hard money lender. Weinberg said the Federal Deposit Insurance Corporation (a government agency) has yet to set clear guidelines for banks to follow; instead the agency has just issued the risk factors involved with lending to the industry. “These banks see all these risks and think ‘no way,’” he added. “One would think with no banks involved we would be knocking the socks off this industry, but that’s not the case.”

In Denver, demand for industrial space, which is used by the industry to grow marijuana, is so high that it has pushed prices too high, said Weinberg. According to commercial real estate firm Cassidy Turley, the industrial vacancy and asking rental rates in Denver reached historical levels at the end of the second quarter in 2014.

Although landlords are reaping the benefits of above-market rents, it doesn’t necessarily mean the value of their properties is increasing, said Weinberg. One example is a transaction that he recently evaluated in Pueblo, Colo. He said the potential borrower contacted him about taking out a $341,190 loan on an industrial building he paid $274,950 for two months earlier. The borrower said the new appraisal on the building showed it was worth $568,650, because he was going to get a marijuana tenant.

However, after Weinberg analyzed the current market rents, he came to a different assessment of the value of the property – that it was worth much less. “The industry is going to change and these landlords aren’t going to be able to charge these high rents forever,” he added.

Fairview doesn’t lend to the marijuana tenant but the landlord. They also refinance properties that include marijuana tenants. Fairview, which has offices in Colorado, Georgia, Illinois and Florida, is a full-service lending firm that provides loans ranging from $56,865 to $1,705,950 million.

Weinberg said he believes the marijuana business will continue to experience growth, but unfortunately come with a number of risks until it is not a controlled substance under the eyes of the federal government. “They are going to have to deal with this industry,” he said.
“Whether you hate it, like it – it doesn’t matter. It is here to stay.”

(All prices AUD) - read the original article here.