Legal marijuana cultivators are driving a different kind of success in California. The decriminalization of recreational weed in California is forming a gold rush for warehouses to host weed grows. Investors don’t have a lot of options to directly cash in on California’s recent move to legitimize weed. Presently, there are no marijuana producing organizations publicly trading the substance. On the other hand, cannabis remains unlawful under the federal government. All the same, they wait in anticipation for a lift in the demand for warehouses as legitimate weed companies continue to look for space to cultivate their marijuana supply. In the coming few months, the demand for weed is expected to shoot up and that is why marijuana delivery companies are committed to increase the weed grows for a steady supply.
Company shares such as those of Rexford Industrial Realty Inc, Terreno Realty Corp and Prologis Inc that have enormous exposure to the market in California must benefit even if they do not lease to cannabis firms directly. This is for the reason that, marijuana companies should pay above-set market rates for outmoded facilities that are ideally appropriate for the indoor cultivation of weed plants and for storing marijuana products as well. Apparently, this takes out some of the space in an already competitive market and pushing general rents higher than expected. Marijuana companies will find several distressed properties and still use them. In most cases, they will have the money to make payments for the same regardless of the cost. This way, it permits companies with contemporary facilities to even charge more. The real estate asset trusts for warehouses based in California are attractive to many investors. This emerging demand is somewhat expected to be of great benefit to the owners.
In November 2016, California legalized recreational cannabis for adults. This achievement was first made in Colorado and Washington D.C. Other states that have passed recreational weed laws are Alaska, Oregon, Nevada and Massachusetts. The increasing demand for warehouse space in the state of California for cannabis-related firms comes as customers are searching for marijuana for sale online. Some of the retailers are placing another demand through the establishment of distribution centers. In 2014, the rent for warehouses increased by 10% in Colorado following the start of legal cannabis sales, according to CBRE, a real-estate data organization. The First Industrial Realty Trust Inc. shares that at 5% of assets had the largest allocation of its portfolio in Colorado increased to 25% within the same year. This resulting figure was twice that of the broad S&P 500 Index.
Marijuana cultivated indoors is basically more consistent and contains a higher concentration of tetrahydrocannabinol (THC) than any other grown elsewhere. Well, the fund ownership is steadily increasing in a falling market. The number of funds with shares of warehouse companies in California is increasing as the wide real estate sector starts to slip. For instance the number of funds holding Prologis, which is the biggest warehouse REIT generally, has about 20% of its portfolio in California. According to the Morningstar data, this was an 11% increase over the last quarter of the year. Fund ownership of Terreno and Rexford, smaller firms that have 20% or more of their portfolios in California increased by almost 2%. Generally, the MSCI U.S. REIT index has slipped by 4% over the last 3 months. This has occurred as investors left companies focused on dividends in search of higher rates of interest. The Rexford and Terreno shares are both up roughly at 9% and Prologis shares are also up at 4% over the same period of time even with lower yields compared to the 3.6% of the S & P Real Estate segment.
According to analysts, the increasing power of pricing from a highly competitive market must help the warehouse companies focusing on California to counter the rising rates of interests. The growth of rent is very robust and there is some occupancy that can be leased out at higher rates. As of now, about 90% of Rexford’s inventory has been given out for rent. Looking at the 96% lease for all warehouses located in Southern California, the company should get a stronger rent and a growth of occupancy more than its competitors.