The passage of Prop 64 allows for the sale and taxation of commercial cannabis in the state of California. This development may have both negative and positive consequences for local Real Estate Markets. Commercial real estate owners in areas where cannabis cultivation and the sale of marijuana are legal may see a significant increase in real estate values and lease-rates.

For example, in Denver, cannabis cultivation is only allowed in certain industrial zoned areas. According to this report, those properties which are usable for marijuana grow operations are attracting the highest lease-rates — two to three times higher than the average warehouse lease rates in their respective markets. Closer to home, a commercial broker who works in Monterey said that in the last few years, more than 20 major transactions worth roughly $100 million have closed, and prices are on the rise. Locally, a client of ours sold his warehouse in Soquel for close to 50% above market in just one week. Want to know how? Call me at 831-600-6550.

On the residential side, the value of homes near cannabis-growing operations may suffer. Realtor.com reports that “Colorado homes within a half-mile of a marijuana business often have lower property value than homes in the same county that are farther out” and that “neighborhoods with grow houses are the least desirable, with an 8.4 percent price discount”. On the other hand, a growing marijuana industry can provide a boost to local economies, which will, in turn, help to bolster home-values.

If you are considering buying Santa Cruz real estate with the intention of cultivating marijuana or leasing to cannabis-cultivators, read on for an update on both Santa Cruz and the state’s law-making process.

To legally cultivate cannabis, both a state and local license will be required. In both levels of government, regulations are still being formed. Here is an update on where the California and Santa Cruz County are in this process:

California Licensing

The following is a summary of the California Cannabis Portal’s licensing webpage.

The Bureau of Medical Cannabis Regulation (BMCR) is the lead agency in developing regulations for medical and adult-use cannabis in California. CalCannabis Cultivation Licensing, a branch office within the California Department of Food and Agriculture (CDFA), is responsible for developing regulations to license cultivators of these two types of cannabis.

Business and Professions Code section 26050.1 allows the Bureau to issue temporary licenses, which allows a business to engage in commercial cannabis activity for a period of 120 days. The Bureau can only issue a temporary license if the applicant has a valid license, permit, or other authorization issued by the local jurisdiction. Find temporary license application information here.

Because of the stipulation that a local license must be obtained prior to a state license, the legal cultivation of commercial cannabis will be subject to the county’s legislative timeline.

Santa Cruz County Licensing

At the county level, the Santa Cruz County Board of Supervisors has formed the Cannabis Licensing Office, which has the task of developing local regulations after the passage of Prop 64. The county has commissioned an Environmental Impact Report (EIR) for two proposed cannabis ordinances, County Code 7.128 Commercial Cannabis Cultivation, and County Code 7.132 Commercial Cannabis Manufacture. Read more about the EIR process here. Until a replacement ordinance is enacted, the current local law states that commercial scale cannabis cultivation for recreational use is currently not allowed in Santa Cruz County.

You will note that the proposed draft ordinance on the cultivation of commercial cannabis seen above is solely focused on the cultivation of medical cannabis. This is because this draft was written before the passage of Prop 64, and so the cultivation of recreational cannabis was not yet considered. According to a representative of the Santa Cruz County Cannabis Licensing Office, the intent is to strike the word “medical”, where it occurs, in this draft ordinance before its final passage. There will also be updates to the current dispensary laws which will allow local dispensaries to sell recreational marijuana. These changes to dispensary related laws will probably be out by the end of this year and the cultivation ordinance is expected to be completed sometime around March of 2018.

Currently the board is in a public comment period, in which members of the public can send thoughts and recommendations to the Planning Department before the next round of ordinance-review beings. Follow this link to see where to submit a comment.

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