Marijuana’s Legal Status in California and What Happens Now

Opinions about marijuana are all over the map in Mendocino County, and people can get pretty fired up about their respective positions. Whether you’re pro or con, whether you think legalizing marijuana will help or hurt the local economy, whether you think people who smoke a single joint are drug addicts or no different from an occasional wine drinker, the simple fact is: cannabis will soon be legal to use, possess and share (as well as grow at home) in California.

By a margin of about 56 percent to 44 percent, voters passed Proposition 64 last November, making California the fifth state to legalize recreational pot, after Colorado, Washington, Oregon and Alaska. And the State of California is leaving it up to local jurisdictions to sort out some of the details around cultivation, processing, distribution, and sale. Humboldt County to our north has been proactive and has already put regulations in place.

While state and local governments sort out regulatory details, we still don’t know what Attorney General Jeff Sessions plans to do about enforcing federal anti-drug laws that run counter to state and local ordinances. He’s clearly not a marijuana fan.

In my opinion, the legalization of marijuana is going to have a significant impact on the real estate industry, particularly in Northern California. As it becomes a more readily accepted agricultural crop, and more areas allow cultivation, there will be more volume grown and more tonnage available. A simple supply and demand curve tells us that as supply increases, price decreases.

There are tremendous variables in all this. We don’t know if more people will consume marijuana because it is legal. And although it is hard to imagine marijuana be any easier to get in Mendocino County, for people in other parts of the state, it likely will be easier to find and purchase. Another significant issue, which is difficult or impossible to quantify at this point, is whether Mendocino County will be able to charge a premium for cannabis grown here versus the Sacramento Valley.

My concern from a strictly economic position is that as cultivation picks up in other areas, the increase in supply will force local prices down. Depending on the quantity of production and the price drop, our county could see far less money circulating in our economy.

Of course, not all money generated by the illegal marijuana industry contributes to the local economy. Some marijuana is taken to the Bay Area and traded for hard drugs. Some proceeds from marijuana sales are literally boxed up and sent out of the country. But locals who profit from the marijuana trade do spend money eating in local restaurants and buying local products and services, and the truth is that if the price of marijuana plummets, it will have a noticeable impact on local retail sales (and the associated tax revenue). A dramatic drop in the price of marijuana will probably lead to a dramatic drop in the price of 40-acre parcels with southern exposure and ample water at the end of a dead-end roads all across the county.

If government regulation (either through taxation or other restrictions) limits supply or increases the cost of marijuana, then that will impact its ultimate retail price. If those taxes and/or restrictions are high enough, then producers, distributors, and processors will remain on the black market and continue to get a price that exceeds what I’ll call the “retail commercial production” price—the price that results from following the rules.

While Mendocino County will probably be able to charge a premium for its high quality product, the Sacramento Valley’s production will still eat into local revenue.

This whole thing boils down to two points: the price of current marijuana land will decline and government revenues will probably follow suit. Our local governments need to consider this at budget time.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. 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 40 years.