Canada may achieve full legalization of cannabis on a national level before the U.S., but all eyes are on California and the "green rush" taking place there.

One significant side effect of the slow creep of legalization — first of medical, then of recreational use of cannabis in North America — is the cross-fertilization of the Canadian and U.S. commercial property markets, particularly in the industrial arena. Supply of the tightly regulated cannabis cultivation and distribution facilities that growers and distributors use to produce, package and transport their product to market is slim, and there is a rush to stake a position in the California market, where recreational use became legal Jan. 1.

Canadian cannabis companies have become formidable contenders in the California market, where a long-underground local cannabis industry is struggling to emerge into the light of regulated commerce. Dedicated cannabis real estate carries very high premiums, but Canadian concerns, well capitalized after experiencing dramatic run-ups in the stock market, do not mind paying them, industry players said.

"My guess is that, frankly, every Canadian company has some sort of strategy that looks at California right now," Afzal Hasan, president and general counsel at CannaRoyalty, said in an interview.

Hasan described California as an ideal cannabis market that benefits from the confluence of several favorable characteristics and conditions: It is a massive state economy driven by bustling, cosmopolitan cities and a rich agricultural tradition; it has a cannabis business-friendly economic and legal framework; and it has cultural cachet on the global stage.

CannaRoyalty, a cannabis manufacturing and distribution company listed on the Canadian Securities Exchange, is headquartered in Ontario, but the bulk of its operations and employees are in California. The company is looking to become the first conglomerate in the cannabis space and to take the brands it acquires and develops to the global marketplace over time.

"I think most of the Canadian companies are realizing the brands are where the value is going to be in the future, and that's why they're all starting to, slowly but surely, start looking into the California market," Hasan said.

Jason Thomas, CEO and managing broker at Avalon Realty Advisors, a Denver-based commercial real estate brokerage focused on the marijuana and hemp industries, described the current California cannabis real estate market as the "Wild West" and a "free-for-all" where Canadian companies are dominant buyers. Prices, whether to lease or own property, vary from market to market, but one can expect to pay a 2x to 3x premium in any given area if the property is cannabis-dedicated.

"It's literally a land grab right now. If you can find it, you have to take it, because tomorrow it's probably going to be gone," he said in an interview.

For many smaller market players, asset prices are prohibitively expensive. CannaRoyalty, whose properties are largely in the northern part of the state — the historical center of California's illicit market — is looking to expand in Southern California, but Hasan confessed to some reluctance. He called the pricing today "horrendous."

"I would not be interested in purchasing or doing any business around [cannabis real estate] myself if I didn't have to," he said. "It's bloated, it's overvalued, because of the enthusiasm. And frankly, it's a grossly overactive real estate broker practice."

Avalon Realty's Thomas estimates that existing product serves roughly 70% of current space needs in California, with the balance satisfied by build-to-suits. He said most Canadian companies are still looking to partner with local U.S. players already established in the state, to flatten the learning curve. There will be massive demand for newly built space as the market matures, he said.

"For the foreseeable future, there are opportunities to fund real estate," Thomas said. "And as more cities and counties open, that will allow for more potential occasions."

Others corroborate the "Wild West" narrative. Peter Ingersoll, managing director of the cannabis-focused real estate brokerage KIND Realty Investments, described the California market as still opaque and secretive, with only about 10% of growers operating fully above-board. That lack of market transparency is partially responsible for the current astronomical real estate prices, Ingersoll said. However, he expects the "ecstatic enthusiasm" of Canadian capital to accelerate the California market's maturation.

"All this new capital is going to [persuade] hundreds, perhaps thousands, of different companies to step up, grow their operations legally, reduce their cost of operations so they can be more profitable and competitive, and be legal," he said. "They will show others how to be professional and legal in this industry."

Ingersoll expects a bifurcated cannabis property market to emerge in the near term, comprised of assets that are fully cannabis compliant, with water and sewer access, and operated by established operators, on the one hand, and poorly maintained older properties that will fail to achieve the prices to which their owners feel entitled, on the other. In the first category, the coming months will yield transactions with "eye-popping" values, he said.

"It's not a fully functioning market," he said. "Personally, I don't look at that as a problem. I look at that as an opportunity."