Due to the conflicts between state and federal law, there is an inherent risk to being a commercial cannabis landlord in California. Below we will outline 4 steps you can take to alleviate some of your risk, but you can never alleviate all of the risk.
There is uncertainty under the federal guidelines and the federal government has not brought a case against a landlord in California or forfeited his property in a number of years, follow the appropriate steps and you won’t be the one to break that streak.
First, you need to know your tenant. Do your research and know exactly whom is leasing your property. You will want to ensure you do a background check on the tenant. If it is an entity, you will want to know the identities of all interested parties. When applying for a state license they will need to identify all individuals with at least 20% interest in the entity. You should request that same information.
Second, you will want to have provisions in your lease agreement that ensures your tenant will comply with state law and regulations. However, this can be difficult in practically applying. One way you can ensure compliance is to have a provision in your lease that would allow you to terminate the lease if you receive a state or federal notice of violation. This will provide you with reassurance that you can hold your tenant accountable in operating a compliant and legal cannabis business.
Third, in order to limit any neighbor concerns and to limit any potential criminal activity you can include a provision in your lease that would require the tenant to have higher security measures. The cannabis business owner will already be required by their local government and the state law to have strong security measures so they will already have to abide by the provision, but adding it to your lease agreement will provide you with further reassurance.
Lastly, if you are still concerned about a federal forfeiture action against you, you can demand a large deposit from your tenant. That deposit can then be withheld to cover any harm or damage incurred as a result of their use of the property. Additionally, you will want to require your tenant to indemnify and hold you harmless for any potential losses, damages, or liabilities that may arise.
These four steps are some precautions that a landlord can take to mitigate their risk; h owever, it would be good practice to consult with an attorney before entering into an agreement with a cannabis business tenant.