Will Your Tenant Go Up in Smoke?


The Risks of Leasing to a Medical Marijuana Dispensary in Los Angeles By Kevin Sher

I recently received a call from a client who owns a small commercial building that has been vacant for over a year despite his broker’s best efforts.  A medical marijuana collective had offered to pay above-market rent to lease the building as a dispensary.  Naturally, he was intrigued by the prospect of filling the vacancy at rent that would be the envy of his neighbors; however, he was equally concerned with the risks of leasing to a tenant whose use, while permitted in California, remains illegal under federal law.  If he leased to a medical marijuana dispensary, would his tenant, like the product it sells, eventually go up in smoke?

In 1996, California voters passed Proposition 215 legalizing marijuana prescribed for medical use.  However, under the federal Controlled Substance Act of 1970 (”CSA”), the manufacture, distribution and possession of marijuana, whether for medical use or otherwise, is strictly prohibited.  Both criminal and civil penalties, including forfeiture of assets, can result from federal prosecution for violations of the CSA.  This situation has created a challenge for landlords of medical marijuana dispensaries who are caught in the battle between the state and the federal government over the legality of medical marijuana.  For the balance of this article and the city letter, click here.