Legalized Marijuana in Washington: Difficult Issues for Commercial Landlords

December 20th, 2013 - Laughlan H. Clark

With the passage of I-502 and the development of a regulatory framework for legalized growing and retail sale of marijuana in Washington, several issues have emerged for landlords who may be asked to lease premises to producers (“growers”), processors, and retail sellers.

First, a major issue that must be remembered is that possession and sale of marijuana remains illegal under federal law. Indeed, one who is knowingly involved in the possession or sale of marijuana may be an accomplice or conspirator under federal law. So, what does it mean that what is legal under state law is illegal under federal law? This involves complex constitutional issues about whether federal law pre-empts or supersedes state law in this situation. Washington courts have yet to decide this issue and other state courts within our judicial circuit are not in agreement. The response of the federal government (United States Department of Justice) to this situation has been to say it does not intend to attempt to invalidate the state law, at least so long as Washington implements “strong and effective regulatory and enforcement systems” that will address threats to public safety and public health. There is, of course, no guaranty that the federal government will always take this stance. However, it is likely that if its position changes, there will be notification to the states of this change.

So, if you are a landlord, and you are approached by a prospective tenant who wants to lease space for state licensed growing, packaging, or sale of marijuana, there are two primary issues of concern. First, at a minimum, any lease will need to have a well drafted escape clause so that in the event federal law enforcement takes the position that Washington’s laws as to marijuana are invalid, and/or expresses an intent to enforce federal law, the lease will immediately become null and void. As a secondary concern on this issue, the landlord should also be indemnified from any loss resulting from the termination of the lease, though we must remember that indemnification provisions are only worthwhile if the indemnifying party has the resources to pay.

The second major issue for landlords is their relationship with their bank. Banks or other financial institutions, whether chartered nationally or state chartered, cannot legally possess, move, receive, or otherwise “touch” money involved in an illegal activity. Banks who are receiving money that they know comes from illegal activity (illegal under federal law, if not state law) are concerned they may be found to have violated money laundering laws and face criminal sanction, much less lose their charters. Some landlords have been told by the lender holding the mortgage on their property that if they lease to marijuana related tenants, their loans will be called on the basis of illegal activity. Others have been told that even if their loans are not called, they will not be given any new credit. Others who don’t even have loans have been told by their lenders that they do not want rents from marijuana tenants deposited in their bank. While a “fix” at the federal level is being discussed, given the atmosphere in Congress, no one can predict whether such a fix is likely.

The new laws legalizing marijuana have created a challenging situation for commercial landlords. Any landlord dealing with a marijuana related businesses should consult an attorney familiar with these issues.

Disclaimer: This article and blog are intended to inform the reader of general legal principles applicable to the subject area. They are not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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