The great divide that yawns between state and federal laws when it comes to the legalization of marijuana was the subject of IREM President Don Wilkerson’s most recent column for NREI . He called it a “tightrope that each and every one of us must take trafficking (you should excuse the wording) in a business that is approved in certain states but is banned across the board by the federal government.”
According to IREM’s government affairs director, Ted Thurn, and legislative liaison Megan Booth, with whom Wilkerson recently chatted about the issue, “some 29 states have given the thumbs up on medical marijuana sales; only three have OK’d the drug for recreational use,” he wrote.
Health issues aside, it’s hard to deny the pure economic impact, and Wilkerson noted that, “in my home state of Nevada, which is among those that sanction the drug, in the first six months after legalization, marijuana generated $30 million in tax revenue, well ahead of projections. But that doesn’t make the split between state and fed any easier for CPMs here and elsewhere to deal with, and for a number of reasons.
“Not the least of these,” he wrote, “is the fact that marijuana is an all-cash business. Credit cards and bank accounts are federally controlled, so the business is cash-and-carry, which has serious implications for rent payments.” In his conversation with Booth, she asked: “How will those businesses pay rent?”
She pointed out that, given cash caps on real estate transactions, managers risk running afoul of federal money-laundering laws. Not to mention the increased crime risk of businesses locally known as cash-based.
“You can also run into the dual risks of providers who sell it across state lines or sell pot to minors,” Wilkerson added. “Either can put a well-meaning manager in serious hot water. Even on the homegrown recreational side, there are traps.” These include mold (since it is typically grown in tight spaces), and an exorbitant drain on building resources.
In fact, according to Booth, “one plant takes a gallon of water and 18 hours of light a day.” In addition, many of the risks associated with secondhand tobacco smoke apply as well to marijuana.
“But change seems to be coming that, for better or worse, would eventually end the split decision and cure the discrepancy,” said the IREM president. “Not surprisingly, Congress—in an apparently perennial haze of its own—has waffled on the issue.”
According to Booth, the Obama Administration sent out memos to state attorneys general spelling out targets for prosecution. “It was clear in those memos that they were going after illegal distributors, sellers to minors and across state lines, not state-licensed manufacturers,” she explained.
Fast-forward to the current administration. President Trump has voiced his support for relaxation of some of the laws, although Attorney General Jeff Sessions “has a long history of being vehemently opposed to legalization,” said Booth in the article.
That aside, she explained that she has seen a growing change in attitude on the Hill as a number of congress people—no matter the side of the aisle or, for that matter, their age—draft legislation that would ease or eliminate restrictions on sale and use.
“None of these bills have gotten to the president’s desk,” she told Wilkerson, “but the amount of support has been growing every year. Within five years there will be some nexus between fed and state.”
“That, however, does little to provide current guidance through the thorny thicket that exists for property managers,” Wilkerson wrote. “So our legislative liaison provides it for us:”
“Property owners have to be very well aware of the laws,” she said. “On one hand you need lease provisions that specify exactly what you will and won’t allow. For example, if you’re a non-smoking building, you may need to make it clear that that includes any substance. If you have something in your lease about illegal drug use, you may have to specify federally prohibited substances.”
But the article points out that tenants coming to you with requests for reasonable accommodation are another consideration, especially if it comes from, let’s say, a veteran needing marijuana treatment. On one hand, that’s an ADA issue. On the other hand, ADA is a federal law.
“As all property owners know,” Booth said, “landlord-tenant law is controlled at the state and local level. So it ultimately depends on the disposition of local judges. You could have a conflict when you deny someone accommodation and the state says they should receive it. Know how your local courts treat the issue.” And keep in mind that, in the case of a non-smoking building, there are other forms of the substance, such as tinctures and oils, that could serve that tenant just as well.
“If Megan Booth’s five-year prediction is right, there are months of hassle, questions and opportunities ahead for managers to inadvertently cross the legal line,” our IREM president wrote. She and Thurn advise CPMs to arm themselves with knowledge. Know the laws, both fed and state, and the local courts’ behavior on the subject. And ultimately trust your own informed judgment.
“Ironically,” Wilkerson concludes, “this issue of people getting high demands a clear head on the part of savvy business people.”
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About the Author
John Salustri is editor-in-chief of Salustri Content Solutions, Inc., a consultancy focused on enhancing the web and print content of clients around the nation. He is a regular contributor to JPM Magazine and a frequent blogger for IREM's website. Prior to launching SCS, John was founding editor of GlobeSt.com, the industry's premier real estate news website, where he managed the daily output of 25 international reporters, and prior to that, he was editor of Real Estate Forum Magazine. John is a four-time winner of the National Association of Real Estate Editors' Award for Excellence in Journalism.