Real Estate Trends

Cannabis Real Estate Transactions: Weeding Out The Confusion

July 10, 2019 - Posted by Beccy Clennan - Manager of Commercial Title & Escrow

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Has the passage of recent Marijuana laws made the real estate industry in Michigan more confusing? Closing a cannabis transaction could be easier than you think.

The Michigan Medical Marijuana Act and passing of ‘Proposal 18-1, the coalition to regulate marijuana like alcohol’ have created many new opportunities for the commercial real estate market including increasing property sales, rehabbing older buildings, and filling vacant spaces in shopping centers.

However, it has also created new challenges to the real estate industry including issuing title insurance, facilitating closings, and financing transactions.

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 Consano, a recently rehabbed marijuana provisioning center, Mt. Pleasant, MI

THE CURRENT STATE OF CANNABIS & REAL ESTATE

The passage of time seems to be shifting the legalization of marijuana across the United States and with it, the real estate industry. It can be a bit confusing to keep the nuances of state and federal cannabis law straight, so we’ve included an overview of the National and Michigan Marijuana policies about real estate below.

NATIONAL POLICY

Marijuana is still a federal ‘Schedule I’ drug under the Controlled Substances Act, which says that when someone is found growing, processing, or selling marijuana, the offender’s personal and real property may be seized. This concern has caused some problems with financial institutions banning doing business with any company associated with marijuana altogether, even in legalized states.

MICHIGAN POLICY

At last count, 144 municipalities have opted in and adopted cannabis ordinances with more cities and townships coming online regularly. While numerous big cities have opted in, it’s also having an extreme impact on smaller communities such as Coleman, Mt. Pleasant, Clare, and Frederic Township which are also allowing dispensaries.

Generally, if state law gives people more rights than federal law, the state law is legally supposed to prevail. However, in the case at hand, Federal laws prevail and there continue to be conflicts between the State and Federal levels which bring the genuine possibility of fines and imprisonment.

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CHALLENGES TO CLOSING CANNABIS TRANSACTIONS

STAYING WITHIN THE BOUNDS OF THE LAW

The divergence of state and federal law and the reluctance of professionals to participate in real estate transactions involving cannabis businesses have posed significant challenges to those in the Michigan marijuana real estate industry.

Another challenge is the potential impact on commercial real estate leasing. Marijuana is considered illegal under federal law, zoning ordinances and use provisions, and with the concerns of how cannabis falls into Title 21 (the Crackhouse Statute), the liability to the lessor can be extremely high.

21 USC § 856 makes it a felony to knowingly open, lease, rent, use, or maintain any place for the purpose of manufacturing, distributing, or using any controlled substance. It permitted the Justice Department to prosecute property owners who knowingly and intentionally allowed others to use their property to hold events for the purpose of distributing or using drugs. For example, it was used to prosecute people such as motel owners and car repair shop owners who knowingly and intentionally allowed their premises to be used for drug distribution. The statute is amended by the Illicit Drug Anti-Proliferation Act of 2003 which makes it more feasible to successfully prosecute rogue event promoters.

FINDING AN UNDERWRITER

While no title policy insures the use of the land, an insured party can be assured that a covered claim will not be denied because the property insured is or was used for cannabis purposes at the time of title policy issuance.

The recent laws have caused most title insurance Underwriters to respond with a hardline directive that they will not insure any property that is or will be used for any cannabis activity. Finding a title agency with cannabis friendly underwriters can be difficult, but is key to closing a cannabis real estate transaction.

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HOW TO CLOSE A CANNABIS PROPERTY IN MICHIGAN

While closing a cannabis transaction can be complicated, it’s not impossible. Don’t let your transaction go up in smoke. Here’s how to close a cannabis transaction and be safe:

WORK WITH EXPERIENCED PROFESSIONALS

Given these challenges associated with cannabis, it’s wise to involve real estate professionals with experience in these specialized transactions.

FIND A COMPETENT CLOSING AGENT

Financial institutions will generally still require your transactions to be closed by a competent title company. A Title and closing agent with experience in cannabis transactions will be able to coordinate the closing from start to finish, making it a seamless transaction for all parties involved.

IN SUMMARY

While State and Federal levels of government continue to debate the constitutional clauses, this divergence can certainly make closing a marijuana real estate transaction tricky for someone in Michigan.

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Corporate Settlement Solutions (CSS) employees are experts in cannabis real estate transactions. Within the last year, we have completed over 40 cannabis transactions. We have the experience and knowledge necessary for Cannabis transactions and can issue a title policy insuring the property anywhere in Michigan and the 21 states east of the Mississippi.

 

 

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