What Landlords and Cannabis Operators Need to Consider When Negotiating a Lease
The cannabis industry has been expanding at a rapid rate nationwide for a number of years now. As of January, 24 states have legalized cannabis for recreational use and that number is likely to grow over the next few years. With rapid expansion comes the need for spaces where cannabis businesses can operate. While some operators are in a position to purchase property, many who are starting or expanding their businesses will need to lease that space from commercial landlords.
Unlike in standard leasing transactions, both landlords and tenants must take into account a number of additional considerations when the space in question will be used for a cannabis business.
Local Land Use Regulations
While certain states have passed laws legalizing medical or recreational cannabis (or both), it is often local municipalities that govern how those laws are interpreted on the ground through land use regulations.
Such regulations can contain requirements, restrictions or outright prohibitions related to cannabis. Requirements and restrictions can include, but not be limited to, required distances from certain properties, such as schools, daycare centers, public parks or recreation facilities); limits on where cannabis can be used within the municipality, such as certain commercial or industrial zones; set hours of operation; and restrictions on the size and design of building signage related to the cannabis use.
Both landlords and tenants should work with legal counsel to understand local land use regulations that affect cannabis before entering into a lease to ensure a successful transaction.
Considerations for Landlords
- Understanding Financial Covenants. Landlords need to determine if existing loan covenants will be violated by entering into a lease for cannabis use. While some lenders have started entertaining the idea of cannabis use leases, most financing documents will …