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SHOULD YOU LEASE TO A CANNABIS BUSINESS?

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Friday, December 15, 2017.

Are you thinking about leasing some property to a business that deals in cannabis?

If so, there are a few key points that you want to keep in mind when dealing with this potentially lucrative business:

Mitigate your risk

Since cannabis is still illegal under federal law, you want to put a clause in any commercial real estate contract that will allow you to terminate the lease if there is any federal action or interest in the renter’s business.

The goal is to prevent you from losing your property in a federal raid, should that happen.

You also want to include a clause that requires the tenant to notify you if there is any federal involvement, investigations or interference in the business of which you are unaware.

Otherwise, it may be too late by the time you find out to keep your property from being seized.

Enforce policies regarding insurance and licenses

Depending on the type of cannabis business (grower vs. dispensary) you want to make certain that the business is properly insured. You also want to make sure that the tenant carries additional insurance that will reimburse you if your property is damaged as a result of their grow operation or other activities.

Weed killer and pesticides, for example, can become explosive under the right circumstances. If stored improperly, they can damage the water table. You don’t want to be financially liable for any environmental or hazardous cleaning that has to be done.

You also want written into the lease a requirement that the cannabis business have all the state-required licenses for its operation. Include a requirement that they have to provide you with the documentation of those licenses and any updates.

This is merely the tip of the complex world involving cannabis businesses. It is a high-risk kind of deal, but it can also be a very lucrative one. If you have property that hasn’t been profitable in a while but happens to have the right makeup for the cannabis market, it is definitely something you should explore. Just keep good legal and financial advisers at your side to help you do a thorough examination of the deal before you commit.

Source: cascadebusinessnews.com, “Cannabis Commercial Leases: Not Your “Run-of-the-Mill” Commercial Lease,” Jennifer J Clifton, accessed Dec. 15, 2017

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