Get It Right: California Cannabis Business Lease Agreements – Above the Law

Commercial leases for cannabis businesses are unique and require special considerations for risk management during the tenancy. Whether you are a landlord or a tenant, in addition to the normal cannabis-sensitive provisions that go into cannabis lease agreements, you should also consider the following when deciding how to structure a landlord-tenant relationship under California’s recently passed Medicinal and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA”):

Ownership in the tenant cannabis company. Buying and selling shares in privately held cannabis companies can trigger state and federal securities laws and create regulatory problems under California’s cannabis licensing program. A landlord’s acceptance of an ownership share from a tenant in lieu of or in addition to rent can jeopardize the cannabis tenant’s California state cannabis license. California’s MAUCRSA defines “owner,” among other things, as any person with 20% or more ownership in the licensed cannabis company or any individual that exercises “direction, control, or management” of the licensed business. All such “owners” are subject to thorough background checks as part of the company’s ability to acquire and maintain its cannabis business license. A change in ownership or control puts the tenant’s license at risk of being revoked, harming both landlord and tenant.

“Premises” and multi-tenant cultivation. Industrial multi-tenant cannabis cultivation parks are big business in the marijuana sector, but whether they’ll be allowed in California is still open to question. MAUCRSA defines “premises” as “the designated structure or structures and land specified in the application that is owned, leased, or otherwise held under the control of the applicant or licensee where the commercial cannabis activity will be or is conducted. The premises shall be a contiguous area and shall only be occupied by one licensee.” It is not clear whether California’s cannabis regulators will allow licensees to set up multiple “premises” on one

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