Marijuana's Impact on Real Estate

By Megan Booth

RISMEDIA, Monday, December 18, 2017— While the cultivation, distribution and possession of marijuana remain illegal under the federal Controlled Substances Act (CSA), nearly all states* allow for the limited medical use of marijuana and eight states (plus the District of Columbia) allow for some recreational use. More than 17 states allow individuals to grow their own marijuana plants for personal use.

To date, the federal government has primarily targeted marijuana trafficking and distribution of marijuana to minors; however, the Trump Administration has specifically stated that there is a "big difference"* between medical and recreational marijuana, and Attorney General Jeff Sessions is strongly opposed to the legalization of marijuana.

Marijuana legalization has an impact on real estate in a variety of ways. It can affect closings, leasing, property condition, association policies and more. If you are in one of the 46 states that allows some form of legal marijuana, you should develop policies and procedures for marijuana use and cultivation in properties that you own, sell, lease or manage.

Marijuana plants require significant light and water to thrive. This affects utility usage, and, if not controlled, can cause mold due to the high humidity that encourages growth. Many growers use closets or other small spaces as grow rooms. You may want to address this type of usage in your building policies and be aware of it during inspections.

Residents can request an accommodation for medical marijuana even if your building is non-smoking. You should consider what types of accommodation you will provide. Marijuana does not have to be smoked; there are edible options, and creams that can be absorbed through the skin.

If your state permits the use of recreational marijuana, there are also decisions to make. Do you allow residents to smoke it? If your property is non-smoking, do your rules apply to marijuana in addition to cigarettes? Does your condominium or homeowners association address this in rules relating to smoking and/or growing marijuana? If you do allow smoking (either for recreation or as a medical accommodation), how do you address secondhand smoke to other residents? What about future use of a unit if the odor permeates drywall or carpeting?

Financial institutions are regulated by the federal government and are subject to criminal and administrative sanctions if they offer services to marijuana businesses. As a result, most marijuana business is conducted in cash. Business tenants are also likely to pay rent in cash. This can lead to increased security risks for properties and subject landlords to money laundering statutes. If you do lease to a marijuana business, you should clearly identify landlord and tenant responsibilities for security measures.

Recently, there have been changes in policy by some title companies, refusing to close or insure any property associated with the cultivation, distribution, manufacture or sale of marijuana. Obviously, this will complicate the settlement process for some properties. You should strive to be aware if title companies in your area have similar policies.

The biggest risk for real estate is federal civil asset forfeiture laws. If the government utilizes civil asset forfeiture, entire buildings and properties can be seized for being complicit in or failing to prevent illegal activity. This has not yet been used with respect to state-legalized marijuana; however, shifts in Trump Administration policies could change this policy by the federal government.

A summary of considerations by National Association of REALTORS® (NAR) affiliate the Institute of Real Estate Management is available here: http://irem.org/File%20Library/Public%20Policy/MarijuanaLegalizationLaws.pdf.

A brief video outlining marijuana issues is also available on NAR's website here: www.nar.realtor/impact-of-legalized-marijuana.

* www.ncsl.org/research/health/state-medical-marijuana-laws.aspx
** www.whitehouse.gov/briefings-statements/press-briefing-press-secretary-sean-spicer-022317/

Megan Booth is a senior policy representative in NAR's Government Affairs Department.

This column is brought to you by the NAR Real Estate Services group.

For more information, please visit www.nar.realtor.

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