Jacob Redmond
Well-Known Member
Picture this: A broker receives a call about a client's vacant warehouse property. The prospective tenant wants to rent the space and will pay double what the last tenant paid.
The catch: The tenant wants to use the property as a recreational marijuana grow site. The broker knows he can make a great commission, and the client is salivating over the rent windfall. However, with big rewards there are typically big risks. True here also. What are the broker's obligations, and what are the client's risks?
At a minimum, a broker must disclose the fact that a prospective tenant is in the marijuana industry. A broker should also tell a client that there are financial and legal risks involved in leasing to a marijuana business. If a landlord decides to proceed, the landlord and broker should involve a lawyer familiar with state and federal marijuana laws to help ameliorate the risks, to the extent possible.
So what are the specific risks associated with leasing to marijuana businesses? The following is a list of some of the most important issues for landlords to consider.
Marijuana Is Still Illegal At The Federal Level.
We all know that recreational marijuana will be legal in Oregon, subject to regulations promulgated by the OLCC, in July. However, it is still illegal under federal law. This inconsistency creates unusual risks for landlords, tenants and maybe even brokers.
The federal government has implemented a policy statement indicating that it does not intend to prosecute individuals and companies complying with state marijuana laws. However that is only a policy statement, not a guarantee. Moreover, this policy could change with a new administration.
Until federal marijuana laws change, the federal government could prosecute any person that knowingly aids in the manufacture, distribution or sale of marijuana. This could include a landlord or broker. Also, a property used to grow or sell marijuana could be subject to federal forfeiture laws.
Oregon's Recreational Marijuana Laws Are Still A Work In Progress.
Measure 91 passed, but the implementing regulations have not been drafted. In other words, your prospective tenant willing to pay double market rental rates does not know whether your client's space will even meet the regulatory requirements for a grow site. Most industry insiders are making educated guesses at what the location requirements will be based on medical marijuana requirements and requirements in other states. However, there is still uncertainty, and landlords need to take that uncertainty into consideration when drafting letters of intent and leases.
Renting To A Marijuana Business Can Put Your Mortgage At Risk.
Property owners with mortgages should speak with their lenders before leasing to marijuana businesses. Most mortgages prohibit property from being used in any manner inconsistent with federal law. Leasing to a marijuana business would likely violate this type of provision. Landlords should also be made aware that most banks are hesitant to enter into this industry, so many may refuse to allow marijuana tenants on the property. One possible workaround is including an indemnification clause in the lease requiring the tenant to indemnify the landlord from any loss if the loan is called. But remember, an indemnification clause is only as good as the tenant's ability to pay.
Marijuana Has Unique Operational Impacts On Property.
Indoor manufacturing facilities require significant amounts of water and electricity. Growers may be using pesticides and herbicides, and there can be waste water issues. Grow sites also could have odor issues, which may cause concerns from neighboring tenants. Retailers and processors will have their own unique issues to take into account. Additionally, it is likely that all marijuana businesses will need to comply with strict security requirements, including safes, security system and video surveillance system. All of these issues need to be considered and addressed in the lease.
Marijuana Requires More Than A Standard Lease.
Given the changing legal landscape, property owners looking to lease to marijuana businesses need to build flexibility into their leases. For example, the recreational licensing process has not been implemented yet, so tenants who are currently leasing space for the recreational industry do not have licenses and don't know whether they will get one.
Brokers and landlords need to keep that in mind when determining if and when a letter of intent will be binding, and when to include rent escalators. Brokers and landlords will also want to ensure a landlord can terminate the lease without penalty in a variety of circumstances, such as a change in the federal government's enforcement policy, loss of the tenant's licensure or any governmental or bank action against the landlord or property.
The lease should also be tailored to the industry. It should address the operational impacts mentioned above, and it should include narrowly tailored uses that will be permitted on the property. The uses should identify the type of activity contemplated (e.g., sale, manufacture, etc.), and whether the tenant will be operating in the medical or recreational field. The permitted uses section, and the representations and warranties, should require the tenant to maintain appropriate licensure and operate in compliance with specific state marijuana laws and non-drug related federal laws.
Marijuana laws are going to continue to evolve over the next few years. Most of the issues that will affect landlords are going to be in the Oregon Liquor Control Commission's implementing regulations. Brokers involving themselves in this area should be intimidated. A good dose of intimidation creates caution.
That does not mean that landlords or brokers should steer clear of this area. This is not unlike a securities transaction. If a broker recommends to a client that they could raise the equity for their project through a securities offering, that broker should introduce their client to a team of experienced lawyers, accountants and securities brokers that can help them do it right.
The same is true with this new marijuana area of law, if a broker or landlord believes that a marijuana related business would provide a benefit to the property, they should surround themselves with experienced professionals so that they can mitigate the risk. With a team approach, landlords and brokers can learn how to best protect themselves to take advantage of the opportunities in this industry.
News Moderator: Jacob Redmond 420 MAGAZINE ®
Full Article: Take a team approach with legal weed (Guest column) - Portland Business Journal
Author: Coni Rathbone and Marjorie Elken
Contact: Contact Us - Portland Business Journal
Photo Credit: None Found
Website: Business News - The Business Journals
The catch: The tenant wants to use the property as a recreational marijuana grow site. The broker knows he can make a great commission, and the client is salivating over the rent windfall. However, with big rewards there are typically big risks. True here also. What are the broker's obligations, and what are the client's risks?
At a minimum, a broker must disclose the fact that a prospective tenant is in the marijuana industry. A broker should also tell a client that there are financial and legal risks involved in leasing to a marijuana business. If a landlord decides to proceed, the landlord and broker should involve a lawyer familiar with state and federal marijuana laws to help ameliorate the risks, to the extent possible.
So what are the specific risks associated with leasing to marijuana businesses? The following is a list of some of the most important issues for landlords to consider.
Marijuana Is Still Illegal At The Federal Level.
We all know that recreational marijuana will be legal in Oregon, subject to regulations promulgated by the OLCC, in July. However, it is still illegal under federal law. This inconsistency creates unusual risks for landlords, tenants and maybe even brokers.
The federal government has implemented a policy statement indicating that it does not intend to prosecute individuals and companies complying with state marijuana laws. However that is only a policy statement, not a guarantee. Moreover, this policy could change with a new administration.
Until federal marijuana laws change, the federal government could prosecute any person that knowingly aids in the manufacture, distribution or sale of marijuana. This could include a landlord or broker. Also, a property used to grow or sell marijuana could be subject to federal forfeiture laws.
Oregon's Recreational Marijuana Laws Are Still A Work In Progress.
Measure 91 passed, but the implementing regulations have not been drafted. In other words, your prospective tenant willing to pay double market rental rates does not know whether your client's space will even meet the regulatory requirements for a grow site. Most industry insiders are making educated guesses at what the location requirements will be based on medical marijuana requirements and requirements in other states. However, there is still uncertainty, and landlords need to take that uncertainty into consideration when drafting letters of intent and leases.
Renting To A Marijuana Business Can Put Your Mortgage At Risk.
Property owners with mortgages should speak with their lenders before leasing to marijuana businesses. Most mortgages prohibit property from being used in any manner inconsistent with federal law. Leasing to a marijuana business would likely violate this type of provision. Landlords should also be made aware that most banks are hesitant to enter into this industry, so many may refuse to allow marijuana tenants on the property. One possible workaround is including an indemnification clause in the lease requiring the tenant to indemnify the landlord from any loss if the loan is called. But remember, an indemnification clause is only as good as the tenant's ability to pay.
Marijuana Has Unique Operational Impacts On Property.
Indoor manufacturing facilities require significant amounts of water and electricity. Growers may be using pesticides and herbicides, and there can be waste water issues. Grow sites also could have odor issues, which may cause concerns from neighboring tenants. Retailers and processors will have their own unique issues to take into account. Additionally, it is likely that all marijuana businesses will need to comply with strict security requirements, including safes, security system and video surveillance system. All of these issues need to be considered and addressed in the lease.
Marijuana Requires More Than A Standard Lease.
Given the changing legal landscape, property owners looking to lease to marijuana businesses need to build flexibility into their leases. For example, the recreational licensing process has not been implemented yet, so tenants who are currently leasing space for the recreational industry do not have licenses and don't know whether they will get one.
Brokers and landlords need to keep that in mind when determining if and when a letter of intent will be binding, and when to include rent escalators. Brokers and landlords will also want to ensure a landlord can terminate the lease without penalty in a variety of circumstances, such as a change in the federal government's enforcement policy, loss of the tenant's licensure or any governmental or bank action against the landlord or property.
The lease should also be tailored to the industry. It should address the operational impacts mentioned above, and it should include narrowly tailored uses that will be permitted on the property. The uses should identify the type of activity contemplated (e.g., sale, manufacture, etc.), and whether the tenant will be operating in the medical or recreational field. The permitted uses section, and the representations and warranties, should require the tenant to maintain appropriate licensure and operate in compliance with specific state marijuana laws and non-drug related federal laws.
Marijuana laws are going to continue to evolve over the next few years. Most of the issues that will affect landlords are going to be in the Oregon Liquor Control Commission's implementing regulations. Brokers involving themselves in this area should be intimidated. A good dose of intimidation creates caution.
That does not mean that landlords or brokers should steer clear of this area. This is not unlike a securities transaction. If a broker recommends to a client that they could raise the equity for their project through a securities offering, that broker should introduce their client to a team of experienced lawyers, accountants and securities brokers that can help them do it right.
The same is true with this new marijuana area of law, if a broker or landlord believes that a marijuana related business would provide a benefit to the property, they should surround themselves with experienced professionals so that they can mitigate the risk. With a team approach, landlords and brokers can learn how to best protect themselves to take advantage of the opportunities in this industry.
News Moderator: Jacob Redmond 420 MAGAZINE ®
Full Article: Take a team approach with legal weed (Guest column) - Portland Business Journal
Author: Coni Rathbone and Marjorie Elken
Contact: Contact Us - Portland Business Journal
Photo Credit: None Found
Website: Business News - The Business Journals
