Pot Warehouses in Denver Are Booming – at the Detriment of Low-Income Neighborhoods

Originally Published on PSMag.com
By Charlotte West | April 26, 2018

Soaring commercial real estate prices are a sign of a thriving pot industry in Denver—but low-income communities of color are taking a disproportionate property-tax hit.

As one of the first states to legalize recreational marijuana in 2012, Colorado has become a laboratory for the regulation and licensing of the cannabis industry. Due to industrial zoning requirements, most of Denver's grow operations have been concentrated in low-income, predominantly minority neighborhoods.

While residents' fears that legalization would increase crime rates have not come to fruition, the saturation of marijuana grow licenses in particular neighborhoods of Denver has led to skyrocketing commercial real estate prices as businesses seek out warehouse spaces for indoor grow facilities.

The phenomenon has not been limited to Colorado. From California to Maine, the marijuana industry has fueled a boom in the commercial real estate market. Property owners have been able to charge above-market rates for tenants operating in a gray area between state and federal law. As a result, property values—and property taxes—in surrounding areas have soared.

In Denver, marijuana cultivation facilities are only permitted in industrial zones, which make up just 3.1 percent of the land in the County of Denver, according to a June of 2017 analysis from CBRE, a real estate services firm. While dispensaries are more evenly spread out throughout the city, cultivation facilities are concentrated along the industrial corridor.

CBRE found that Denver's 4.2 million square feet of grow operations are concentrated along the city's main highways—I-25, I-70, and South Santa Fe Boulevard. Warehouse space for marijuana cultivation is renting for two to three times higher than the average warehouse lease rates in the surrounding areas. And it's those rising rents that are putting additional pressure on the residential market, which is already being squeezed as Denver has one of the fastest growing populations in the United States.

Three North Denver communities that have some of the highest concentrations of marijuana business licenses, and some of the lowest household incomes, are Globeville and Elyria-Swansea. Collectively known as GES, the three neighborhoods are home to a predominantly Latino population of around 10,000 residents. While Denver has an average household income of $73,100, the household income is $44,700 in Elyria-Swansea, and $39,200 in Globeville, according to U.S. Census data.

GES currently has some of the fastest growing real estate prices in Denver. Between 2013 and 2015, the median home value in GES increased by 68 percent, compared to 30 percent in the rest of Denver, according to the Office of Economic Development. Growth has slowed somewhat but between 2015 and 2017, the average median home value in Globeville increased by 43 percent from $133,000 to $190,600 based on data from the Denver assessor's office.

A 2017 study from the University of Wisconsin found that single-family residences close to a retail conversion—a medical marijuana dispensary that had been converted to a recreational use dispensary—increased in value by approximately 8 percent. Another 2018 study estimated that legalization has led to an average 6 percent increase in housing values in metro Denver.

As a longtime resident of the Elyria-Swansea neighborhood, community organizer Candi CdeBaca lives in close proximity to four grow facilities. "When they were planning to legalize, we knew that they weren't addressing the zoning issues of how the burden would be equitably dispersed throughout the city. We anticipated that the concentration of dispensaries in the neighborhood would be similar to what we know about the concentration of liquor stores in poor and black and brown communities. What we didn't expect was the concentration of grow facilities," she explains.

Residents of GES say they have born the brunt of the negative impacts of the cannabis industry—which has generated more than $500 million in revenue for the state of Colorado since weed was legalized in 2014—while enjoying none of the benefits. "There's over 200 licenses for manufacture, grow, and sales of marijuana [in GES] and we've seen nothing given back to our communities," says Globeville homeowner Rey Gallegos.

The Denver Post found that, of more than 600 marijuana businesses, which include dispensaries, grow facilities, and manufacturing locations, Elyria-Swansea had 78 locations, including 54 cultivation facilities, while Globeville had 24 marijuana businesses, nine of which were grow operations. In an attempt to prevent further oversaturation, the Denver City Council passed a moratorium on new licenses in April of 2016, which capped the number at 467.

"[Our neighborhood] is one of the few places in Denver that's zoned for cultivation, so those [warehouse] spaces are highly coveted. The taxes have skyrocketed and we're seeing gentrification in a different form here in this neighborhood. It doesn't look like your typical scrapes and flips," CdeBaca says.

CdeBaca has seen her own property taxes more than double in the last few years. While rising taxes aren't the only issue plaguing GES—it's also the most polluted zip code in the country—property taxes have been particularly devastating for the area, which has one of the highest concentrations of poverty in Denver county.

While many homes in GES have been passed down through multiple generations, more recent home buyers also wonder if they will continue to be able to afford their mortgages. Swansea resident Robin Reichhardt, for example, says his monthly housing payment has increased from $910 to $1,480 in the two-plus years since he bought his one-bedroom house.

The jump is due to increased taxes after his property value was re-assessed. He currently puts about 60 percent of his income toward housing. "In many ways I consider myself very privileged, but we're struggling," he says.

Art Way, state director the Colorado office of the Drug Policy Alliance, says that GES was one of Denver's few neighborhoods of color that had survived the gentrification taking place in other parts of the city over the last 15 years. "When marijuana legalization came, they could no longer stand untouched," he says.

Since the 1960s Elyria-Swansea has been bisected by I-70, which is now undergoing an expansion that is displacing more than 90 households through eminent domain. The city is also pouring more than $1 billion into the re-development of the National Western Complex, home to an annual livestock show.

A June of 2017 survey from the GES Coalition, a community-based organization working on health and housing justice, found that the majority of families in GES are "rent or mortgage stressed," and have become extremely vulnerable to involuntary displacement. More than 80 percent of property owners identify as Hispanic, nearly twice the national average of home ownership rates for Hispanics. While 80 percent of homeowners said they do not want to move out, those who do want to sell cited "I-70 related development" and "marijuana commercial impacts" as the primary reasons.

Erik Soliván, former executive director of the city's Office of Housing and Opportunities for People Everywhere, says that marijuana has increased commercial land use and there's an expectation that commercial density in the neighborhood will increase with the completion of the National Western project and the expansion of I-70.

"That pushes up the residential values. The land that those homes sit on, just like in lots of other places around Denver, is more valuable than the structures," Soliván says.

He says that some residents are cashing out and selling their homes to move elsewhere. The challenge is for those households that are forced to sell because they can no longer afford the rising property taxes in the area. "Can you afford to go anywhere else at that point? Most of them can't."

Way stresses that it's the way the marijuana industry has been zoned, not the businesses themselves, that poses the biggest challenge. "The marijuana industry is basically a reminder of the fact that the city has not prioritized those neighborhoods when it comes to affordable housing and growth over the last decade or so," he says.

KindColorado is a Denver-based organization that has developed a Cannabis Social Responsibility framework that it hopes to use to encourage the marijuana industry to engage with the communities in which it operates. According to founders Kelly Perez and Courtney Mathis, Denver can provide lessons to other states and municipalities such as California that are in the process of legalizing marijuana—for one, that officials need to make sure both the positive and negative effects of zoning requirements are spread evenly across jurisdictions, and that legalization does not exacerbate existing racial and economic inequalities.

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