More States Hop on the Bud-Wagon, But Don’t Hold Your Breath for CRE Action

While the actions may, quite literally, fill many with elation and euphoria, it will take some time for these states to establish a regulatory framework under full legalization to manage, not only future retailers and their consumers — the end products — but growers, manufacturers and distributors, all of whom utilize commercial property outfitted to meet the needs of their respective operations. 

With the exception of South Dakota, which threw down the gauntlet last Tuesday and voted to legalize both medical and recreational cannabis, three of the four states that legalized recreational use are essentially graduating from having previously established laws allowing for medicinal cannabis sale and use. Montana (2004) and Arizona (2010) introduced medicinal through ballot measures, and New Jersey did so via its state legislature in 2010. (Prior to last week, South Dakota had shot down recreational cannabis at the ballot twice before.)

Last week’s results were in the cards for states like New Jersey, which has been expanding its multibillion-dollar medical cannabis market for years. And, according to The Washington Post and some cannabis advocacy groups, a recreational market in New Jersey could grow to more than $1 billion in sales by 2024. 

This type of environment bodes well for seasoned cannabis operators and retailers with solid financial backing, and a history navigating different versions of state law to acquire or lease real estate and maintain operations. New Jersey CannaBusiness Association President Scott Rudder said in comments following the decision last week that it’s likely that existing medical cannabis operators within the state will receive priority status in its new adult-use cannabis program. This will more than likely be true in Arizona and Montana as well. 

The process for obtaining financing, the necessary real estate, proper licensing, local approval, and, in many cases, the right capital partner or operating partner, in order to begin business can differ by state, but it is always a very stringent and extremely expensive endeavor. And, after a retailer or operator is up and running, state oversight typically doesn’t lend itself to favors or leniency. Those businesses that have the benefit of having worked with a variety of different state agencies will have a leg up.

Because of these factors, incorporating a new recreational market and the corresponding operational guidelines, restrictions and taxation framework into each state’s economy will be a slow burn, especially for a state like South Dakota, which has not yet had to accommodate a market for medicinal marijuana and its participants. If it’s any indication as to how steep a climb the state might have in moving to implement its initiatives, not long after its historic move last week, South Dakota Gov. Kristi Noem told Dakota News Now that voters in her state made the “wrong choice” by choosing to legalize marijuana, adding that it does not work to “strengthen our families.”

Despite the governor’s disapproval, South Dakota — as an indication of the typical timeline to building and implementing the proper regulatory and tax framework — announced after the election that its revenue department was going to begin working with its Department of Health to draft regulations to implement the legalization measures, which will come into effect on July 1, 2021.

South Dakota’s Revenue Department will now build out a system for licensing commercial businesses by April 2022. States allowing for medical or recreational cannabis, typically, provide just a handful of licenses, which are capped, to approved operators or retailers. These licenses can cover everything along the supply chain, from cultivation and manufacturing to distribution and retail. These businesses, of course, operate under a different set of rules and under increased scrutiny, from both operational and financial perspectives.

Noem, critical of her state’s initiatives, said in a statement last Thursday that she was “very disappointed that we will be growing the state government by millions of dollars in costs to public safety and to set up this new regulatory system.”

Prior to this year’s wave of states jumping on the bud-wagon, Illinois was the latest to legalize recreational adult use, which became effective on New Year’s Day 2020. Illinois was the first state to legalize possession, as well as commercial sales, through its state legislature and not a ballot measure. 

Colorado and Washington were the first two states to legalize recreational use in 2012, as both put the measures into effect in December of the same year. 

Alaska legalized recreational in 2014, but the decision didn’t come into effect until February the following year. In the spring of 2019, the state became the first to permit its retailers to allow customers to consume cannabis products on-site at dispensaries. 

Oregon legalized recreational cannabis uses in 2014, but it took the state until March 2016 to finally put it into effect. Washington, D.C., also legalized recreational use in 2014, with the law being ushered in several months later in February 2015. 

Maine, Massachusetts and Nevada followed a year later, legalizing recreational in 2016, although it took Maine and Nevada until January 2017 to put it into effect, and Massachusetts a year after that.

California’s legalization of recreational cannabis was in early November 2016.

Michigan and Vermont allowed for legal use in 2018, with Vermont legalizing possession and use through its state legislature, rather than by ballot.