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Cannabis Changes the Game of Real Estate

Local businesses worry the cannanbis industry is edging them out.

While Oregon may still be the new kid on the legalization block, the two states that beat us to the punch, Washington and Colorado, might have a lesson or two to teach us about what’s to come.

There’s no doubt that states have benefited financially from taxing the recently legalized industry and are looking at dramatic declines in crime rates, according to a 2015 study by the Drug Policy Alliance.

Oregon’s Department of Revenue started collecting taxes on recreational cannabis for the first time beginning Feb. 1, and by March 4 the state had collected $3.48 million from dispensaries statewide.

But growing and processing cannabis takes up space — a lot of it. In fact, it takes up so much space that the Washington State Liquor and Cannabis Board tasked the University of Washington’s Cannabis Law and Policy Project with a study quantifying how much space is needed to feed the state’s appetite. The study found that the current 12.3 million square feet — three times the size of the Mall of America — licensed by the WSLCB is enough to provide for the state’s total market, while the medical cannabis industry only needs between 1.7 million and 2 million square feet to reach the state’s needs.

According to a study published last October by commercial real estate firm CBRE, the cannabis industry accounted for 3.7 million square feet of Denver’s occupied industrial space.

At the time, the study found the average industrial lease rates were $7.05 per square foot across the Denver metro area, and that rates for Class B and C warehouse spaces had jumped 56 percent, from $4.06 to $6.34 per square foot, in the past five years.

According to The Denver Post, cannabis tenants tend to pay two to three times the average lease rates. This also seems to be the case in Eugene, according to John Erving, a representative of commercial real estate firm Evans, Elder and Brown, who says, “If you’re renting a space for a dispensary, you’re most likely going to have to pay above market for rent.”

Erving says this is due to the fact that cannabis is still deemed illegal by the federal government, and most renters are wary of leasing space to those in the cannabis industry.

The cannabis industry isn’t alone in its battle for space in Eugene. On the other side of the coin, local non-cannabis businesses are having trouble coping with the change in leasing prices and sharing the space.

Mancave Brewing Company owner Brandon Woodruff says he was leasing a space on Fifth and Fillmore that saw its rates jump from about 33 cents per square foot to a dollar per square foot. The business was unable to cope with the increase, leaving Woodruff and his business without a location to operate.

“We even offered them more than double what we were paying,” Woodruff says. “They wanted a buck. I don’t even know where they come up with these numbers.”

Woodruff suspects the raise in rental costs is due to the recent legalization of cannabis. 

Erving says it’s difficult to put all of the blame on the cannabis industry, because leasing rates have increased across the board in the last year or two.

“It’s hard to say it’s due to marijuana licensing for cultivation,” Erving says. “It’s also just because the economy started turning around and buildings started going up.”

Woodruff’s old neighbors still worry, despite no change in their rental agreement. Owner of Mora Auto Repair Jose Mora says that if his rent does goes up, he worries about losing the space.

“It’s been stressful,” Mora says. “Marijuana is destroying certain businesses.”

While he says he doesn’t have any gripes with those in the cannabis industry, he worries about it negatively affecting small businesses like his own.

“We feel like we have a rope around our neck,” says Mora mechanic Pablo Alvarez. “We’re just waiting for someone to kick the stool.” 

The landlord of the spaces where Mora’s business is currently located and Woodruff had previously leased from confirmed that the space is going to be taken over by a grow operation.

“I own a 21,000-square-foot building on 5th and Fillmore that I’m leasing to people who grow dope,” Darrel Mansell says. He says he does not plan on raising the rents on the remaining tenants.