February 15, 2023 | Written By Ida Rose Nininger
It is always a good idea to have a lawyer review a lease before you sign it, but in the cannabis business especially, the problems that can arise from hastily signed leases can be significant. Pitfalls can come about from issues related to anything from utilities to fixtures to federal law. This article will address the most important topics to be managed in a commercial lease for a cannabis business.
Obtaining a license for a cannabis enterprise in many states, if not all, requires that the premises at which the business is to be situated must be secured ahead of time. This means a lease needs to be signed (or property bought) before the license is obtained. As a result of this risky setup, commercial leases with cannabis companies should make the effect of the lease contingent upon the successful receipt of a valid license. This is beneficial to all parties. For the landlord, it preserves the viability of the income-generating potential of the property without bogging the property down in an unlicensed business. For the tenant, they have to option of release from an often very lengthy lease term with very expensive rent if they cannot legally pursue their business venture.
Most commercial leases will put the responsibility to pay for utilities upon the tenant, and no less with cannabis-related leases. However, many types of cannabis enterprise require an extensive amount of power and/or water. As a potential commercial tenant with a cannabis related business that has such needs, you need to ensure that the capacity of the property can sustain your requirements. Leasing a property that may not have the adequate power or water supply could cause you increased startup expenses in obtaining the appropriate supplies, presuming that is even possible for the property. It is thus important to know the business’ needs in this regard and then verify that the property can fulfill those needs.
Your lease will require that you, comply with local, state, and federal law. Most importantly, be sure that your cannabis business’s lease carves out the exception that you are not required to comply with federal cannabis regulations. As you are no doubt aware, cannabis is illegal at the federal level. A provision in a lease requiring you to comply with ALL federal law could give the landlord an excuse to terminate the lease, or lead to other problems.
In order to obtain a license to operate in any state, you have to have some familiarity with state laws, but equally as important is your familiarity with local regulations. In New York, for example, there are entire towns that have opted not to host any cannabis business and/or certain kinds of cannabis enterprises. It would be tragic, not to mention embarrassing, for a cannabis business to obtain a lease in such a place only to realize their industry is illegal locally. Municipality and city zoning laws and land use restrictions can also impact a cannabis business. Familiarity with all these outside influences is essential.
Noise, odor, drainage, smoke, crowds, crime. A cannabis business, depending upon its nature, can have a daily impact on its neighbors. It behooves any cannabis enterprise to familiarize themselves with the tenor of the community into which they are looking to establish themselves, and how their business will be welcomed, even with the best of efforts to lessen neighborhood impact. Keeping this in mind, be sure that the terms of the lease do not expose the cannabis business to obvious violations based upon natural aspects of the business venture.
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