Medical marijuana is legal in twenty three states and the District of Colombia. Eleven states have laws permitting limited possession and use, while four states permit the sale of marijuana for recreational use. Despite this change at the state level, federal law prohibits the use, possession, or sale of marijuana for medical or any other use.
With the federal law incongruent with a growing number of states, what are the implications for residential and commercial real estate?
Real Estate Financing of Cannabis Dispensaries
Marijuana dispensaries are popping up all over states where marijuana has been legalized, but any business related to marijuana needs money to start.
While most businesses have the opportunity to go to a bank for a business loan, the federal government does not allow any bank to loan funds to any business related to marijuana, either medical or recreational. Properties accepting federal funds are regulated by federal policy and laws. Since marijuana is still illegal at the federal level, producing or consuming marijuana on properties with federal backing are inherently illegal under federal law.
Moreover, many landlords whose properties have preexisting leases with marijuana businesses are not offered new loans by large banks because of the illegality of marijuana at the federal level. This causes a number of commercial landlords to discontinue their leases with marijuana dispensaries. It may also mean that landlords are reluctant to rent their space to medical marijuana dispensaries.
If a marijuana dispensary is lucky enough to find space that will rent to them, where can they get financing? A number of private investors back marijuana businesses in the absence of bank loans. These include venture capital and private equity funds, wealthy investors, marijuana business consulting firms that manage private funds, and private providers of high-interest loans.
Can Landlords Ban Drugs?
Even though medical marijuana is permitted in many states, the use of marijuana can cause problems for landlords where marijuana is recognized as legal in some form.
If you live in a state that permits medical marijuana and you own property or are a property manager, you might have already noticed a growing number of tenants claiming they have a medical condition that requires the use of medical marijuana. If your rental lease prohibits smoking on the property, you don’t need to specifically amend it to prohibit the smoking of marijuana, unless you specify tobacco in the lease. If your lease prohibits illegal drug activity and you want to prohibit marijuana use in your building, you should specify that illegal drug activity as recognized by federal, not state, law is prohibited.
Considering that many states do not penalize the use of marijuana, can a landlord evict a tenant for using marijuana?
The law is in flux but housing experts believe state courts are likely to conclude a landlord cannot evict a tenant for legal use of marijuana. While no state explicitly requires landlords to accommodate tenants that use marijuana at home, many states prohibit landlords from discriminating against medical marijuana users.
Evicting Marijuana Users
Even if it appears landlords cannot evict marijuana users for smoking marijuana on their property, they may still evict marijuana users for other related reasons.
For instance, let’s say you own a no-smoking rental building with numerous apartments. One of your tenants has a legal right to smoke medical marijuana, but his neighboring tenant, who has a newborn baby, complains that the smell of marijuana is affecting her and her newborn child. If the tenant is notified that his smoking is disturbing his neighbor and he continues to do it, the tenant may be causing a nuisance which could be grounds for eviction.
Disclosure Requirements
Colorado is expected to be the first state to include a disclosure requirement for pot-friendly properties in its residential purchase contracts. The disclosure could require real estate agents to inform buyers about residential homes and condos in or near buildings where marijuana is allowed.
While there is no disclosure requirement in place yet, it could have an impact on the desirability of buildings where marijuana was allowed. Fifteen states allow growing marijuana for personal use. Growing marijuana requires water, heat, and humidity, which often creates mold. Mold is ubiquitous but most molds are harmless. Nevertheless, buyers are often so fearful of the presence of mold that any sign of it, harmless or no, is an automatic deterrent.
Authored by Erin Chan-Adams, Legal Match Legal Writer and Attorney at Law
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