Medical Marijuana Leasing – Part 1 – The Current State & Federal Laws
With the growth of the medical marijuana industry in California, we have been receiving numerous questions from concerned clients, investors, and real estate professionals as to whether they should or must lease real estate when marijuana use, or cultivation, or dispensing will be involved.
Although this is a huge issue, in this E-News, I will provide a general overview on the application of the many current laws that deal with this subject. I will not be addressing the pros and cons of medical marijuana use which has many supporters and detractors. I am only addressing the legal issues that arise when real estate in California is used for the growing, cultivation, and distribution of medical marijuana.
Applicable Laws: The legality of any medical marijuana use and business is determined by an overlapping structure of State, Local, and Federal laws which are often in conflict. A simple start point here is to understand that any such operation that is not in compliance with these laws is illegal and could subject a violator to criminal prosecution and more. This Article will focus only on determining legality.
1) STATE LAWS – California medical marijuana law is based primarily on 3 separate Acts:
(1) Prop 215 – passed in 1996, deals with personal use only. It provides limited immunity from criminal prosecution to “Qualified Patients” and their Primary Caregiver (if any) as long as they are in compliance with the restrictions set forth in the Act. To be a Qualified Patient, the person need only obtain a letter from a Medical Doctor recommending use of marijuana for medicinal purposes. This does not require a prescription.
(2) Medical Marijuana Program Act (“MMPA”) – passed in 2004, provides limited immunity from criminal prosecution for non-profit “Collectives” to cultivate and distribute medical marijuana as long as they are in compliance with the restrictions set forth in the Act. A Collective may be a group of Qualified Patients or may be an incorporated entity.
(3) Medical Marijuana Regulatory and Safety Act (“MMRSA”) – passed in 2015 and in effect January 1, 2016. This law expanded on the MMPA and provides limited immunity from criminal prosecution for Collectives and Incorporated entities which now can operate on a “for Profit” basis. As with prior Acts, the immunity only applied if they are in compliance with the restrictions set forth in the Act. Those restrictions include a requirement fro separate Local Licensing.
In addition, a proposed Ballot Initiative to legalize recreational use of marijuana in California is anticipated to be brought to the voters in November 2015. Although a similar measure was previously rejected, proponents are looking to the examples of Colorado and Washington to get their measure passed. It is unclear at this point whether any such would change the laws concerning medical marijuana.
2) LOCAL LAWS – even though the above State laws provide a regulatory framework in California, nothing precludes local County or City governments from imposing more restrictive conditions or even totally banning such operations. So throughout California local regulation varies widely ranging from outright bans, to restricted uses, and no regulation at all. However, while local laws can be more restrictive, they cannot be less restrictive than the above-reference State Laws.
3) FEDERAL LAWS – Unlike California, there is no medical marijuana law at the Federal level. Under the Federal Controlled Substances Act, marijuana remains classified as a Schedule 1 Controlled Substance just like heroin and other dangerous narcotics. As such, Federal law treats any use, cultivation, or distribution to be a criminal act which can subject the violator to prosecution and imprisonment. Perhaps more importantly, there is the danger that a property owner who knowingly allows the criminal conduct to exist could also be subject to criminal penalties including seizure and sale of their real property (“Forfeiture”). In such a sale, all costs of law enforcement, legal action, attorney fees, and property maintenance costs will be paid before any lien holding creditors.
The critical question is: Will the Feds actually Seize California Property? Under the existing law, the Feds can and have – until recently – seized real property in California even where the marijuana operation was in compliance with all State and Local laws. Several proposal have been presented in Congress to re-classify marijuana from being a Schedule 1 Controlled Substance but none of these have passed. However, two significant actions have substantially reduced if not eliminated the risk of Federal intervention in California medical marijuana operations:
Cole Memorandum- issued in 2013 by the Department of Justice, this Memorandum sets forth 8 law enforcement “priorities” for marijuana. As long as State Laws are sufficiently robust to satisfy these priorities, the Feds will not pursue federal criminal prosecution for marijuana in that State. The priorities are:
(1) preventing distribution of marijuana to minors,
(2) preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels,
(3) preventing the diversion of marijuana from states where it is legal under state law in some form to other states,
(4) preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or illegal activity,
(5) preventing violence and the use of firearms in the cultivation and distribution of marijuana,
(6) preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use,
(7) preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands, and
(8) preventing marijuana possession or use on federal property
Rohrabacher-Farr Amendment – passed in 2014 and 2015, this Amendment to the Federal Budget prohibits the Department of Justice from interfering with those acting in accordance with their state medical cannabis laws.
SUMMARY: Taken together, the strong set of marijuana regulations in effect in California coupled with the Cole Memorandum and Rohrabacher-Farr Amendment to the Budget make it highly unlikely that the Feds will intervene in any legally compliant medical marijuana operation in California or expose real estate owners or creditors with risk of forfeiture. While it is possible that a future President may reverse the Memorandum and Amendment, it appears unlikely that Congress would go along. Of course, violation of these laws would remain criminal activity and subject violators to all penalties both federally and under California law.
Part 2 – Should I or Must I Lease my Property for Marijuana use?
Part 3 – How should I respond if an existing tenant is growing Marijuana?
For over 20 years, the attorneys of BPE Law have been advising our clients on the purchase and sale, development, management, and leasing of real estate in California. When needed we provide effective and aggressive representation in any litigation, arbitration, or regulatory matters that arise. If you have any further questions, please feel free to contact me at firstname.lastname@example.org or, if you need help now, please call our office at (916) 966-2260 to set up a consultation.
This article is not intended to be legal advice, and should not be taken as legal advice. Every case requires review of specific facts and history, and a formal agreement for service. Please feel free to contact us if you need legal advice and are interested in seeing if we can help you.