Commercial real estate industry faces unique cannabis issues

Commercial real estate industry faces unique cannabis issues

Q: How does the state's new medical marijuana law affect zoning in Oklahoma communities?

A: Cities and towns are within their power to enforce zoning restrictions on commercial activities within their municipal limits. SQ788 partially limited this power by prohibiting municipalities from “unduly chang[ing] or restrict[ing]” their laws to “prevent the opening of a marijuana retail establishment.” Some cities appear willing to test the limits of their authority and have enacted ordinances that severely restrict the operation of marijuana dispensaries, by prohibiting their proximity to a very wide variety of neighbors. These ordinances are likely to meet legal challenges. SQ788 is silent as to local regulation of cultivation and processing operations, so municipalities arguably have wider latitude in zoning those activities. Still, local laws usually must be consistent — not in conflict — with state laws regulating the same activity. Accordingly, municipalities purporting to ban cultivation and processing outright also invite litigation.

Q: What other considerations does SQ788 raise for commercial leasing?

A: Many boilerplate provisions common to commercial leases should be revised when leasing to medical-marijuana businesses. Those leases typically obligate the tenant to obey all relevant laws, but even medical-marijuana operations compliant with state law invariably violate federal drug prohibitions. Similarly, provisions allowing a landlord to take ownership of a tenant's property in the case of default or abandonment legally cannot apply to highly regulated inventory, like marijuana products. Because marijuana — medical or otherwise — remains illegal under federal law, there remains some degree of risk associated with its manufacture and distribution. While there is no sign of federal enforcement, and Congress presently prevents the Department of Justice from expending any congressionally delegated funds on prosecuting lawfully operated businesses in other medical-marijuana states, marijuana-related businesses undeniably face greater exposure than the average tenant. As such, some landlords are requesting broader protections, like individual guarantors or limited indemnifications, from businesses in this space. Q: Are there any other legal considerations that should be thought about regarding SQ788 and real estate?

A: Property owners should consider in advance of leasing to a medical-marijuana business how doing so might affect their mortgage or insurance. While lenders' and actuaries' tolerance of medical marijuana is increasing with its widespread legalization across the country, some institutions remain squeamish about the industry due to the enhanced risks associated with it. Attempting to hide or disguise these operations is unwise and only risks increased liability. While it may be easiest to defer the issue — and simply provide that the tenant will assume the risk of any cancellation or increased cost — it would be a massive inconvenience to all parties to learn of such an issue only after commencing the lease.

PAULA BURKES, BUSINESS WRITER