If you are a commercial landlord and thinking about renting to a marijuana store, you'll need some facts.
Right now there is a rush in San Diego to get in on the ground floor of what many believe will soon be a legal business. Business storefront landlords are being offered premium rent to secure spots for businesses called “marijuana dispensaries” or “cooperatives” to provide related products to the public. Unfortunately, there is great peril for the owner if a business is operating without a Conditional Use Permit issued by the city of San Diego.
A client of mine was recently offered over $2 per square foot with three months paid in advance and a $15,000 deposit. The total offered in cash was $75,000 — this from a prospective tenant who wanted to lease a space in a relatively commercial district in the Midway area.
We worked diligently with the prospective tenant’s attorney and drafted a comprehensive lease which gave many breakaways to the owner and tenant in the event of trouble with the city or federal government.
Current federal law provides that the sale or distribution of marijuana products is against the law; enforcement by the feds could result in seizure of the real property. The laws are not being enforced, but the attorney general or a new administration could change the non-enforcement policy.
Meanwhile, California has passed certain laws which may someday make it entirely legal to distribute marijuana products. The city of San Diego is opening up a permitting process for medical marijuana dispensaries to apply for conditional use permits.
The application process will open April 24. Unfortunately, the city will consider only four applicants at a time. The first four, by time stamp, will be carefully evaluated and if the applicants are approved, the Conditional Use Permit will be issued. The permit process is expected to take from nine to 12 months.
Any landlord considering renting to a marijuana distributor should go to the city of San Diego’s website, Sandiego.gov. The website contains a “White Paper on Marijuana Dispensaries” that discusses the relevant issues — who can receive a medical marijuana card, who can distribute, the donation process, and the criminal activities that often accompany the marijuana trade.
This document was prepared in 2009 by the California Police Chiefs Association, so it paints a fairly negative picture, but for any landlord considering such a tenant, all relevant issues should be considered.
The original intent of Medical Marijuana Program Act (SB 240) was to set up a voluntary identification card system for medical marijuana users and “caregivers. This has shown to be abused by people who want the product for recreational purposes, but must first visit a doctor for a prescription. The lower threshold for obtaining a prescription is for a potential patient to claim anxiety or insomnia.
It is legal for patients and caregivers to grow their own product. It is also legal for patients to donate their excess to a co-op or dispensary. This is often under the ruse that that co-op is a caregiver. This, of course, also means that the patient who has no product to trade must "donate" money.
The peril to a potential landlord comes in many forms. First, the feds might try to seize the property, although this does not seem likely right now.
Second, the city of San Diego could start fining landlords for businesses operating without the proper permits, in particular the Conditional Use Permit. Note: the city will fine the landlord. By City Council decision, only four such permits will be issued per council district.
The most serious is the potential for criminal activity caused by the operation of the dispensary. The reason is that the businesses are all-cash. There have been robberies of these cash businesses. Meanwhile, competitors or street vendors may start hanging around.
There is also peril for a potential landlord of civil liability for personal injury claims by someone harmed due to foreseeable injury caused by renting a commercial space for an illegal purpose or to distribute illegal products.
The bottom line is this: If you are a commercial landlord and a potential tenant comes to you offering premium rent and cash up front to distribute marijuana and related products, carefully consider the downside of potential legal entanglements, both civil and criminal. And by all means read the “White Paper on Marijuana Dispensaries” on Sandiego.gov.