Real estate is on the forefront of many people’s minds with New York on the doorstep of adult-use cannabis applications. And for good reason: owning or controlling real estate will be a requirement for applicants (with some soon-to-be caveats for social equity applicants).
We have fielded lots of calls from prospective adult-use cannabis applicants starting to search for real estate. Too often, the question of whether the landlord has a mortgage from a federally insured bank comes as a surprise. If the prospective applicant is working with a real estate broker, not knowing the importance of this issue is a problem (to put it mildly).
Why the landlord’s mortgage is relevant for a cannabis lessee
Many commercial landlords cannot lease to cannabis companies under the terms of their mortgage agreements. This is not because of inherent risk or “unsavory” reputation. For any commercial landlord that has a mortgage issued by a federally insured bank, their loan documents will include a provision in the “Representation and Warranties” section that prohibits leasing to illegal businesses and will often expressly preclude allowing a cannabis business to operate in the mortgaged property. The provision will look something like this:
Borrower hereby covenants and agrees that it shall