November 2015

WHY WOULD YOU LEASE TO A MARIJUANA GROWER?

Industrial real estate owners will be liable and could be prosecuted for leasing to merchants growing and selling pot on their property even if California voters pass a law to legalize the drug in 2016. 

Landlords may lose their property in a federal civil asset forfeiture action.  The federal government can seize property being used for cultivating, manufacturing, or selling marijuana in states where marijuana is legal, according to the United States Justice Department.   Production, distribution and sale of marijuana are still a federal crime under the Controlled Substance Act (CSA).  However, the federal government has made enforcement on legal production, distribution and sale of marijuana at the state level a low priority. 

As a result, landowners must be careful when leasing to these businesses.  Most tenants pay rent in checks or electronic cash deposits from their bank; however, banks are federally regulated; as a result, they are not allowed to offer financial services to marijuana businesses.  Consequently, the tenant has to pay everything in cash.  This could cause a problem for the landlord storing and carrying large amounts of cash to the bank. Of course, there is a federal limit on deposits of cash over $10,000. Deposits of cash could be considered a crime since it is considered money laundering.

In the current economy it really doesn’t make sense for an industrial owner to risk leasing to a marijuana business in Los Angeles.  The rents are already high.  The pot business may pay as much as four times the rate; however, the landlord may lose the building. Under the Civil Asset Forfeiture Reform Act of 2000, the federal government can seize real property used in connection with activities that violate the CSA and are punishable by more than one year in prison.

Provided that the building owner still consents to all of the possible consequences of leasing his/her building to a cultivator or dispensary, the odor of marijuana is almost impossible to eliminate from the  building; as a result, it prevents the owner from providing a clean and habitable property for subsequent tenants.

I have seen in the warehousing of spice products that when the tenant vacates the property, the offices must be demolished, walls must be steamed and painted in the warehouse and floors must be sanded or sealed to eliminate any odors.   Also, the moisture created by the watering of plants and the temperature of the building due to the grow lights weakens the membrane of the roof and may cause serious damage.

In conclusion, in this very strong real estate market, why would you lease to a marijuana dispensary or grower?

“I have relied solely on Lee Segal to handle the assets of two charitable trusts for the past 18 years. As a real estate broker with nearly three decades of experience, I can honestly say that Lee Segal is incredibly ethical and easy to work with, and has always done his best to represent me and my interests without interjecting his own opinions or doing anything for his own gain. His outstanding communication skills make everyone involved feel like they’ve won.” Kimberley Olson, Commercial Real Estate Asset Manager
Kimberley Olson, Commercial Real Estate Asset Manager