Marijuana, Not If But When

Regardless of your opinion about marijuana in our community, it’s here and it’s likely to stay. In fact, I think it’s likely to become a legal part of local commerce, and I estimate that will happen in the next few years.

So what does this mean for Ukiahans? Well, marijuana has many impacts, some obvious, others more subtle. For real estate, marijuana revenues have traditionally propped up land values and to a lesser degree, all local property values.

If and when marijuana is legalized, properties currently well suited to growing illegal marijuana (like a south-facing, 40-acre parcel with good soil and plenty of water at the end of a remote road) will likely drop in value because the street value of marijuana will plummet. Decreased profits will no longer justify buying expensive land, and while remote locations used to safeguard privacy, legalized marijuana will simply make those properties inconvenient to reach.

Hopefully, legalized marijuana will have a positive effect on real estate transactions by simplifying disclosures. Right now, if you want to sell a home in a neighborhood negatively impacted by marijuana, you must tell prospective buyers about any unpleasant odors during harvest, or home invasions in the neighborhood. If marijuana becomes legal, it won’t improve the smell, but it should reduce the crime.

Other changes will also occur. A government agency will likely tax and regulate marijuana, and the size of the tax will determine how much of an underground market remains. If it’s a big tax, there will still be profit to be made on the black market, so some local impacts will be mitigated.

Right now, money generated from growing and selling marijuana filters into our economy through many channels. Direct channels include the purchase of growing supplies such as fertilizer, potting soil, irrigation tubing, generators, grow lights and diesel fuel. When marijuana is legalized, the ripple effect of those dollars flowing through our community will mean less disposable income to purchase other goods, like more expensive real estate, cars, and other consumer products that are in the discretionary category.

The second ripple happens when those who sell consumer goods make less money, and then spend less, for example, on dining out or at the grocery store. Local restaurants will suffer and those who work in them will be the third ripple—spending less because they have less to spend. When the small retail stores supported directly or indirectly by marijuana go out of business, fewer consumer goods will be available locally and money will be spent out of town, either online or in another town, further diminishing the local economy.

The next major area of impact will be tax revenue. While it will take a few years to wash through the system, that remote 40-acre parcel that used to sell for $400,000 will now only sell for $150,000—dropping property tax revenue accordingly. The 25-year-olds with no visible means of income who used to purchase $80,000 trucks will no longer purchase new vehicles of any description: they’ll be on Craigslist looking for used vehicles or riding their bikes. The sales tax revenue from the sale of those trucks disappears, too.

Any tax revenue collected from the sale of marijuana is likely to be collected by the State of California, who hasn’t really been in a mood to share with local jurisdictions in recent years, so locally, we’re set to take a hit.

Regardless of your take on marijuana, whether you use it or not, whether you think it should be legal or not—changes are afoot. If you have the ear of local government representatives, now might be an interesting time to ask them how they are preparing for the legalization of marijuana. Let’s hope you get ideas and not a blank stare in return.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.

 



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