Since licenses to grow, process, or sell cannabis are usually tied to a specific real property location, it is not surprising that cannabis businesses often need real estate help. The following are some basic points we try to convey to our cannabis clients about real estate in a cannabis context.
1. Location. Location. Location. Choosing the right location is important for any business, but this is especially true for a cannabis business. Finding a suitable and state-and-local-law-compliant location for a marijuana business can be difficult. Most states, cities, and counties limit where marijuana businesses can physically operate. States and cities often require cannabis businesses be at least 1,000 feet away from schools and parks because federal criminal law sentencing guidelines tack on extra sentencing time for cultivating, processing, or distributing cannabis within 1,000 feet of a school or park. Local zoning laws can also significantly restrict location options and these can vary greatly from local government to local government. Regulations that limit the number of cannabis stores or grow sites allowed in a given county are also common, as are moratoriums and outright bans.
2. Find a Landlord With Whom You Can Work. Most commercial landlords will not rent out their space to a cannabis business. Because cannabis remains illegal under federal law, landlords can face arrest for violating the federal Controlled Substances Act or, more realistically, losing their property via a civil asset forfeiture. Look what happened to the landlord in the Harborside case. The landlord-tenant relationship can be strained if the landlord is not informed of the nature of the tenant’s business and the risk associated.
3. Make Sure Your Lease Works for the Cannabis Industry. “Boilerplate” lease agreements do not work for cannabis businesses. For example, the typical Commercial Broker’s Association lease states that any illegal activity on the property will constitute a lease default. We usually write our commercial marijuana leases to forbid only those actions that violate state law and federal law with the exception of the federal Controlled Substances Act. Commercial leases also typically contain a provision governing the activities permitted on the leased property. If the tenant is a marijuana retailer, the permitted use provision should explicitly permit the “retail sale of marijuana.” Leaving the permitted use provision vague only increases the chances of the cannabis business tenant being found in breach of the lease for having conducted an activity not permitted on the property.
4. Know Your Property. Our cannabis real estate lawyers are far too frequently brought in on long simmering real estate deals only to have to tell both sides that there will need to be major changes in the deal points for the deal to work at all. Before getting too far down the negotiating path, it is wise to at least secure a real property report. These reports will show ownership history, encumbrances (such as mortgages) on the land, and any easements or other restrictions on property use. For example, if there is an unpaid mortgage on the land, the holder of that mortgage can foreclose on the property, even though the current owner was not the one who entered into the transaction. Even a tenant who is not purchasing the property should be informed of the property’s history and the risks associated with that property.
Please be mindful that possessing, using, distributing and selling marijuana are all federal crimes and that this blog is not intended to give you any legal advice, much less lead you to believe that marijuana is legal under federal law. Please also note that even though marijuana is illegal under federal law, you will need to pay federal taxes just as though you are a legal entity. This is true even if you are a state law not-for-profit entity.