An Odd Market Consideration?

Question

Hi Folks,

I live in Ukiah, California, (Mendocino County) which is 2 hours north of San Francisco, one hour north of Santa Rosa. This area is infamous for being part of the "Emerald Triangle" meaning Marijuana is a substantial part of the economy. Various study's have been done showing that it is probably the largest industry in this region. I bring this up because many here suspect that a legalization bill will pass in 2016 which will cause the economy in this region to take a huge dive (scarcity keeps prices high). Some have cautioned against buying in this area because they expect this huge economic downturn.

Personally, I tend to think that we have enough other fundamentals going for us in this region (wine, tourism, proximity to bay area...) that it won't have a huge effect, but I'm curious what others think. So, anyone have thoughts/input on this?

Lauren Bishop · Answer

Reviving an old thread here...

Glad to see someone else asking this question.  I've mentioned it to several local agents and they've been dismissive.  Because of the potential for this kind of market shift, I am hesitant to invest here.

I think legalization will seriously affect Willits, Covelo, Redwood Valley, Calpella, Potter Valley, and rural locations even more dramatically, but Ukiah will definitely get hit.  If property values in neighboring towns drop, home buyers who would've purchased in Ukiah may be drawn to those locations (more bang for the buck).

I think there will be small micro-markets - like the West Side of Ukiah - that are better positioned to weather the storm; there is seemingly unwavering demand and a fixed supply.  Millennials prefer close proximity to downtown and the walking/biking lifestyle.

Studies show that 50% of the local economy in Mendocino County is tied to Marijuana.  Even without CA legalization, prices have fallen quite substantially over the years.  People seem to have managed relatively well so far, but how much of that is due to increasing production and shipping out of state?  When national supply increases, both of those strategies will cease to be as profitable.  Whether that occurs in 3 years or 15?  Who knows.

Part of why Mendo has dominated this market for so long: the risk to produce has been low compared to... everywhere else nationwide.  Laws are continually being adopted to remove that risk, though.  Ukiah has survived other market shifts, namely the closure of Masonite and the fall of the timber industry.  It will be interesting to see how resilient and adaptable our economy in the face of this upcoming shift.

Stephanie Goodman · Answer

Any updates on where real estate values have gone in those areas? Have the local farmers worked with the state to do things legally or are they continuing with what they have always done? I have been working in the marijuana space for some time now, but I never thought about the real estate values dropping in areas dependent on the preexisting illegal markets.

Duke Marquiss · Answer

Colorado legalized and taxed.  The business is booming - not just the pot smoking but also the edibles, creams, salves and the list goes on.  Price-wise, Guido the killer pimp that sells down behind the K-Mart by the dumpster has a better price for the weed than the dispensaries but he is illegal and they are not.

I don't think they will have a big downturn in the market. Just my opinion.

Michelle Chandler · Answer

Hi guys,

Great to see this conversation, especially with the upcoming election in November and the AUMA bill.

I'm curious if our Ukiah natives (and others) think there is a possibility for a boom in our tourist industry with legalization? With the rise in cannabis awareness around the country and this region being long known for its farms, does this provide a whole new market?

I recently moved back to the area with my family, seems like opportunistic times here in Mendo.

Thanks guys!

Orion Walker · Answer

Thanks for the input @Matt Rosas and @Don Schultz. Yeah, I can certainly see the argument that it could have positive impacts, but it seems like a complicated issue in that most people in that industry around here are afraid that legalization will bring a sever drop in price which will then mean a lot less money in the local economy, folks not able to pay their bills, housing prices dropping... I've heard that the difference between here and Colorado is that they didn't really have an established industry, so there's more of a boom, where here folks see it as dilution. Anyhow, thanks for the two cents. Just one of the interesting quirks of this market to consider I guess.

Don Schultz · Answer

I agree with Matt.  I don't think legalization would have much effect.  If anything, it might help!

Matt R. · Answer

I don't think the legalization is going to make the area less desirable but to the contary as far as real estate values. Colorado has been experiencing a land rush of sorts. That triangle region is known worldwide for its farming product. It could only help not hurt values to make it more legit up there. Investors and the rest will come flocking in is what is going to happen in 2016.

thanks,

Matt

An Odd Market Consideration?

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