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As more states open the doors to legal marijuana, dispensaries are becoming a more common retail sighting. But what happens to the businesses next door when one opens for business?
A new study from researchers at Georgia State University and Chinese University of Hong Kong tackles that question. According to the paper, Do Dispensary Openings Impact Rents for Neighboring Retail? published in the Journal of Real Estate Research, retail rents for businesses in close proximity to new recreational cannabis dispensaries drop by as much as 29 percent after the dispensary opens. The effect is strongest within a half-mile radius and weakens for business that are further away from the dispensary.
This is one of the first studies to explore how cannabis retail affects neighboring commercial real estate—a factor that has been largely overlooked in the growing body of work on marijuana legalization.
“There’s an interesting debate of whether dispensary openings have positive or negative spillover for other nearby businesses, and we looked to the market data to tell us which one outweighs the other,” said Jon Wiley, co-author and professor of real estate at Georgia State’s Robinson College of Business.
Wiley and co-author Liuming Yang collected a huge dataset from every dispensary in the U.S., comprising more than 91,000 retail leases across 11 states that legalized recreational cannabis by the end of 2021. The researchers focused on leases signed within two years before and after a dispensary opened.
The researchers compared rents for properties located near dispensaries (within a half to one mile) with similar properties a bit further away (one to five miles). This let them isolate the effect of the dispensary itself from broader market trends.
To double-check their findings, Wiley and Yang ran a match sample, meaning they also gathered data of retail rents without dispensary openings nearby. They found no negative rent effects in that scenario, strengthening the case that the dispensaries are driving the change.
“We found retail rents within a half-mile to one-mile radius of dispensaries were going down by 15-29 percent, but the opposite was happening with the match sample. Those rents were rising by around the same percentage. Analyzing the data this way clearly linked to the reason for the rent decline being the dispensary openings,” said Wiley.
The study found that the closer the property was to a dispensary, the greater the drop in rent renewals. Notably, this effect was strongest around larger dispensaries and those in highly walkable neighborhoods, where pedestrian traffic and visibility are higher.
The dispensaries in the highly walkable neighborhoods with a walking score of 80 or higher, the rent decline was 37 percent and for larger dispensaries greater than 3,000 square feet, rents declined by almost 40 percent. “These are massive declines in rents that bring down the property value for investors,” said Wiley.
This suggests the decline may reflect how dispensaries change the feel of a retail area. Landlords or tenants may be reacting to concerns—real or perceived—about safety, loitering, or changing customer demographics. Wiley added, “Business owners often express that dispensaries are a nuisance to the neighborhood.”
The researchers’ findings land right in the middle of ongoing debates about cannabis zoning and neighborhood development. Advocates often argue that dispensaries bring jobs, tax revenue, and more foot traffic. Critics worry about nuisance behavior, crime, and the potential for other businesses to steer clear.
“The data shows there are real, measurable economic trade-offs to dispensary openings,” said Wiley. “For landlords and commercial investors, they could lead to lower returns on nearby properties. For tenants, the lower rents might actually help, but only if their business isn’t affected by whatever spillover effects the dispensary brings.”
The study also raises big questions for cities trying to balance cannabis growth with economic development goals. Should dispensaries be kept away from certain retail districts? Or do the benefits outweigh the short-term hit to rents?
With more states considering legalization, these are questions that won’t be going away anytime soon. And thanks to research like this, policymakers now have more data to work with, beyond just dollars from cannabis sales.
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