The regulated marijuana industry is constantly evolving all over the nation, which creates a number of issues for would-be regulated marijuana businesses, including dispensaries, product manufacturers, and cultivators to operate within the industry.
One of the biggest challenges for these businesses is entering into a commercial lease. Due to the continued federal prohibition against the possession, manufacture, and sale of marijuana, a landlord will be taking on some risk by allowing a regulated marijuana business to operate on their property.
Key things that would-be landlords must consider
Both landlords and tenants have to watch for regulatory snags when they’re entering into a cannabis-related lease, but landlords need to be especially sensitive about the following issues:
- Existing mortgages and Future mortgage needs: Most mortgages contain clauses that require a property owner to comply with all laws (including federal ones). Violating that provision to rent to a marijuana-related business could cause the bank to call the loan. However, even if the landlord owns the property outright, renting to a marijuana-related business may affect your ability to use the property for a loan. Many conventional banks won’t give you any financing on a place that’s operating in violation of federal law.
- Regulatory oversight: Regulated marijuana businesses are subject to often draconian regulations that may affect your rights as a landlord, such as the right to inspect the premises or assign the tenant’s lease.
- Insurance concerns: Can your would-be tenant find the appropriate insurance? Can you? This field is opening up, thanks to the general profitability of the marijuana industry, but you don’t want to agree to rent to a tenant until you’re sure that they have valid coverage (and you do, also) to cover potential losses.
- Revenue sharing: At least for the foreseeable future, banking will continue to be a major hurdle in the regulated marijuana industry, and, considering that these companies generally operate an all-cash business, deposits made on behalf of tenants may subject landlords to increased scrutiny from their bank.
All things considered, getting into the commercial rental game with the marijuana industry does have the potential to be profitable – just make sure that you take all the necessary legal steps to protect your interests as a landlord.