What Arizona Commercial Landlords Need to Know About Leases for Cannabis Businesses

Marijuana is a polarizing topic with confusing laws that vary between states and contradict those at the federal level. Therefore, it can be difficult to determine whether Arizona commercial landlords can—and should—lease to cannabis businesses. It can be a very lucrative endeavor, but there are risks involved.

This is what you need to know.

Background on Arizona Marijuana Laws

Arizona voters approved Proposition 203 (the Arizona Medical Marijuana Act) in 2010, legalizing state-regulated purchases of small amounts of marijuana for medical patients with debilitating conditions and illnesses. Cancer patients and other individuals with at least one qualifying condition can now register for the state’s approval, which comes in the form of an Arizona medical marijuana card. This allows them to purchase up to 2.5 ounces of marijuana from a state-licensed dispensary every two weeks and possess up to 2.5 ounces of marijuana at one time.

Additionally, the AMMA provides that marijuana-related businesses must have a state-issued dispensary license or be affiliated with a licensed dispensary, and the business must also have a state-issued approval to operate.

Marijuana is Still Illegal at the Federal Level

Marijuana is still classified as a Schedule I substance, meaning the DEA states it has a high potential for abuse and is not accepted federally for medical use. Though cannabis products are available for adults over age 21 to purchase in 11 states (and are available for medical use in 33 states) federal law prohibits the sale, possession and processing of marijuana. This means cannabis businesses are technically in violation of federal law, which can put commercial landlords in a tough position. The Obama Administration had embraced a lenient policy that kept federal authorities from targeting states that declared marijuana legal.  Initially, the Trump Administration, under Attorney General Jeff Sessions, threw the Obama-era policy into a state of uncertainty.  While it is probable that courts will focus more on cartel and trafficking activity, it is wise to appreciate the risks when leasing to a cannabis business.

Tenants Are Generally Responsible for Compliance

Although a tenant must operate its business in compliance with the law, all parties related to the cannabis business contribute to the landlord’s fate. Tenants are the ones who face repercussions for violations of local laws, but landlords may suffer consequences as well for a tenant’s noncompliance, which in severe cases can include forfeiture of real estate.

Notwithstanding the tenant’s compliance with local and state laws, it is important to keep in mind that marijuana remains illegal under federal law.

How to Protect the Real Estate

Arizona commercial landlords who plan to lease to cannabis businesses should obtain records of all permits and other documentation surrounding the business operations. Specifically, it is within a landlord’s best interest to have a copy of the dispensary agent card; the practices, policies and procedures; state-issued license, the approval to operate and zoning clearances; and compliance with law lease provisions.

Lease Provisions for Cannabis Businesses

There are a few instances in which a landlord could be forced to forfeit the real estate. If there is an egregious violation of local and federal law, the business operation grant is revoked or marijuana becomes illegal in Arizona, a special default provision could be triggered. Arizona commercial landlords are advised to include cannabis business specific lease provisions to cover their interests in the event of any default on the lease terms.

Find an Experienced Arizona Real Estate Attorney

MacQueen & Gottlieb, PLC has extensive experience with property rights and Arizona marijuana laws. Our highly experienced team of real estate attorneys is prepared to help you defend your interests. Contact us today at 602-562-7218 to schedule an initial consultation or make an appointment online.