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Tuesday, September 27, 2022

Legalization of cannabis raises legal implications for commercial real estate

Potential landlords and dispensaries need to strengthen laws and laws that still exist

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By Judith Bachmann

As New York begins defining the regulatory framework for Marijuana Regulation and Taxes Act (MRTA), the law that legalized adult/recreational marijuana use, and legal guidance for setting up physical cannabis business sites under the new law are also beginning to take shape.

The MRTA itself provides some real estate standards.

By law, a retail cannabis holder cannot locate a storefront within five hundred feet of a school or within two hundred feet of a house of worship. These geographic restrictions are similar to those imposed by the New York Alcoholic Beverage Control Act.

Besides these geographic restrictions, municipalities may place zoning restrictions and other reasonable restrictions regarding time, place, and style for on-site marijuana dispensaries and/or consumption parlors in their jurisdiction.

Under the MRTA, towns and villages had the opportunity to choose whether or not to allow such institutions within their borders; A list of opt-in or opt-outs by both towns and villages in Rockland County can be found at https://rcbizjournal.com/2021/12/28/cannabis-opt-ins-opt-outs-undoppeds/. Even if a municipality initially chooses to exit the MRTA, it may face the prospect of cannabis use and regulation within its borders, either by referendum, or the ability, under the MRTA, to reverse course.

As the state and municipalities work to set standards for on-site marijuana dispensaries and/or consumption lounges, commercial owners and potential entrepreneurs would do well to start educating themselves on some of the operating procedures for cannabis businesses.

First, as with the alcohol-related business permitting process, the state will not issue a permit for on-site marijuana dispensaries and/or consumption lounges, unless the permit applicant already owns the property that will be the company’s headquarters or has a signed lease. This means that any cannabis business lease must have a termination clause in the event that the potential entrepreneur does not obtain a permit to operate.

The lease, in turn, due to the patchwork of laws and regulations regarding marijuana yet to come, will require some provisions that differ from the customary commercial lease terms.

Some of these disparate provisions may include: limiting the requirement for a tenant to comply with all laws to enact the federal criminal laws for cannabis, limiting a landlord’s right to re-enter because there may be legal restrictions on who can visit the building and when, and allowing rent to be paid in cash because services Banking for the cannabis business is not yet widely available.

With the economic optimism brought about by New York’s new marijuana law, it is clear that much remains to be determined, including its impact on commercial real estate. Landlords and prospective tenants must keep abreast of regulations coming from the state and municipalities to ensure compliance with their lease contracts.

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