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What marijuana production in Australia could mean for commercial real estate

July 27, 2018

It might be early days, but the marijuana industry could open new doors for Victoria's commercial real estate sector. Photograph: Taylor Weidman/Bloomberg

The legalisation of medical marijuana in Australia and the speculation that recreational marijuana may well be next could open up fresh possibilities for commercial real estate in Australia as major players race to establish domestic manufacturing facilities.

Medicinal cannabis grower, Cann Group recently signed up to lease a five-hectare site in the Melbourne Airport precinct, owned by Australia Pacific Airports Corporation Limited, the company which runs Melbourne Airport.

Cann Group, owned in part by Canadian company, Aurora Cannabis, will breed, cultivate and manufacture medicinal cannabis for sale and use within Australia, and for export.

Commercial Real Estate has learnt that several companies involved in the medical marijuana industry are currently actively seeking commercial properties to house their facilities.

A 13-acre marijuana greenhouse in Enniskillen, Canada, owned by marijuana company Tilray. Photo: Tilray via AP A 13-acre marijuana greenhouse in Enniskillen, Canada, owned by marijuana company Tilray. Photo: Tilray via AP

Spectrum Cannabis Australia, owned by the world’s biggest medical marijuana company, Canopy Growth Corporation, plans to invest $16 million in Victoria over the next four years to establish Spectrum’s Asia-Pacific (APAC) headquarters and research and development facility.

“Our goal is to act quickly and establish a market presence here in Victoria,” said Spectrum APAC managing director, Ben Quirin.

Mr Quirin told Commercial Real Estate that Spectrum is currently focused on looking at “secure” commercial properties in the “agricultural areas” of Victoria with a mind to expansion. “There’s a footprint required for today, but then I am looking at how do we expand over time?”

“We’ve been looking at various sites at present,” said Mr Quirin. “And understanding what’s suitable for us. The focus for us at the moment is actually looking at where we can establish a greenhouse grow, plus having the ability for us to establish a manufacturing facility so that we can do our end-to-end supply chain.”

Mr Quirin declined to reveal the specifications or locations of properties under consideration, but said the company was open to both buying and leasing.

“I think the fortunate thing is that Canopy, as an organisation, is in a position to look at different options.”

Another company, AusCann, also owned by Canopy Growth, aims to become the leading suppliers of medical cannabis products to the Australian market, with plans to build production and research infrastructure in Australia.

The company recently raised $30 million to, in part to fund “expansion of AusCann’s Australian manufacturing plant for final dose form manufacturing”.

Could medical marijuana bring a new wave of demand for industrial property? Photo: Rohan Thomson/ The Canberra Times Could medical marijuana bring a new wave of demand for industrial property? Photo: Rohan Thomson/ The Canberra Times

The federal government has recently enabled the licensed cultivation and manufacture of medicinal cannabis, and this week updated a list of legal Australian manufacturers and suppliers of medical marijuana. In Victoria, the Daniels government has been a vocal supporter of medical marijuana, and stated it aims to have Victoria supplying half of Australia’s medicinal cannabis by 2028.

“In markets where it has been legalised for medicinal and/or recreational purposes, we’ve certainly seen an impact on the commercial real estate sector,” Kathryn House, communications director at CBRE, told Commercial Real Estate.

“However, it’s early days in Australia and what impact it could have on our local real estate market will depend on the industry’s growth moving forward.”

Canopy Growth has already taken out patents for recreational marijuana products in Australia and expects legalised recreational marijuana will eventually follow medicinal.

How US markets reacted to legalisation

The impact on industrial real estate from the legalisation of medical, followed by recreational, marijuana has been significant in America.

According to US agent, Bradco Companies president Joseph W. Brady, legalisation affected the commercial real estate industry, “particularly through the rapid price escalation per square foot in the industrial and retail sectors” and that “several warehouses in the cultivation zone of California that would have sold in the range of USD $30 to USD $40 per square foot ($431 to $575 a square metre) have jumped as high as USD $142 per square foot ($2033 a square metre)”.

A 2016 CBRE study found that the marijuana industry was a driver in the recovery of Denver, Colorado’s real estate market.

It also reported that within just one year of recreational marijuana being legalised in Denver, one in 11 industrial buildings in central Denver housed a marijuana-related business.

In two years, commercial property prices increased by 17.6 per cent, and, within three years, a massive 4.2 million square feet (390,000 square metres) of commercial space in Denver were being used by the industry.

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