The Importance of Understanding Industry Economics: The Cannabis Case Study

Real estate is constantly evolving and changing with economic and social realities. Cannabis officially was decriminalized in Canada in 2018. This led to a greenrush in the development, acquistion and repurposing of large industrial and outdoor facilities for cannabis production to meet the percieved demands of fresh legalization. The inflow of investment capital faciliited rapid growth across the country. However, as quickly as things went green, some real estate assets saw valuations go up in smoke. Our experience in the valuations of multiple mega production facilities, revealed major functional and economic obsolescence issues based on negative economic impacts and the production and design requirements of the facilities themselves. Overall, the massive decline in market value, fair value and book value of these assets had major implications for owners of these facilities. It is also important to take into account the major municipal tax loss implications for jurisdictions who provided incentives for the development of these assets. Additionally, the property tax losses and rapid depreciation of values not accounted for as of the legislated valuation dates. Special use properties and economic obsolescence continue to be a key area in property assessment and valuation that will require special consideration by both private sector appraisers and government assessing authorities.