In the Weed(s)
September 21, 2015 • As we continue to focus on the 2020 lease (see Envisioning the 2020 Lease), we have realized that there is a whole new category of uses that some commercial landlords and tenants are engaging in, but that no commercial lease we have ever seen contemplates or permits.
Those uses are the growth, distribution, and retail sale of marijuana.
An Emerging Opportunity
Thus, apropos of our focus on crafting leases that withstand the test of time and meet the evolving needs of commercial landlords and tenants, we began to consider what a commercial lease for marijuana-related use should look like.
Our research quickly brought us to the threshold question of whether it is “legal” to lease commercial property for one or more marijuana-related purposes. Here's what we learned.
Federal vs State Law
Although a number of states have legalized marijuana for medical and in some cases recreational purposes, federal law still classifies such activities as a criminal offense. In addition to prohibitions on the cultivation, sale, and possession of marijuana, federal law forbids a wide range of related activities including knowingly leasing, renting, maintaining, managing or controlling a place where marijuana is manufactured or sold, and facilitating financial transactions involving funds derived from manufacturing or selling marijuana.
The Department of Justice has acknowledged that enforcement of these federal laws is not a high priority when marijuana-related activities comply with state laws if those state laws guard against threats to public safety, such as the sale of marijuana to minors. However, the Department of Justice has made it clear that there is no assurance against enforcement.
In addition, civil suits for damages, injunctions, and other remedies based on federal law are beginning to make their way through the courts, including a Colorado case charging a multitude of defendants with violation of federal racketeering laws for leasing, renovating, and financing a commercial marijuana dispensary.
Caution Advised
Once we got into the weeds (pun intended) on the legality of marijuana-related property uses, it became clear to us that if you are leasing, renovating, or financing a property for the cultivation, distribution, or use of marijuana you are violating federal law and could be subject to criminal enforcement and civil damages, notwithstanding compliance with state law. And this doesn't just apply to the landlord and tenant; it applies to the attorneys, accountants, contractors, brokers, and lenders as well.
Thus, until there is a clear-cut resolution to the dichotomy between increasingly common state laws permitting marijuana cultivation, distribution, and use and well-established federal law prohibiting these activities, we will be advising our clients to proceed with extreme caution before they pursue the potential value creation opportunities of this market trend.
So much for being flexible, at least in this case.