The Latest on Medical Marijuana

How Legalization of Marijuana Affects RE Agents and Brokerages

Disruption is a major buzzword of our day. Although it’s most frequently paired with technological advances, market breakthroughs and new business models, the move towards marijuana legalization has proven to be a disruptive force in real estate, politics and the law. Even though marijuana remains an illegal substance under federal law, over 30 states, including Illinois, have passed laws providing for the medical use of marijuana. Regardless of where you stand on the issue, the impact of marijuana use and production continues to be felt and discussed around the country. We put together a brief primer on what you need to know about marijuana, as an agent, managing broker, property manager or commercial representative.

PROPERTY MANAGEMENT

Tenants may request an accommodation by way of the federal Fair Housing Act or state law to smoke or grow marijuana on premises. Leases that ban all forms of smoking on the property will protect the landlord; landlords can permit the use of other forms of marijuana such as edibles or lotions in lieu of smoking the herb. Every accommodation request should be considered separately to determine the proper course of action to protect the property, but also accommodate tenants.

EMPLOYMENT LAW

In Illinois, employers are not required to accommodate employees’ usage of medical marijuana; however, employers are barred from discriminating against employees due to their medical marijuana card status. Independent contractors are allowed the freedom to conduct business activities as they choose, but brokerages may include guidelines in its independent contractor agreement on the brokers usage of medical marijuana. It is important that guidelines set forth expectations for their independent contractors, without imposing enough to reclassify them as employees.

COMMERCIAL CONSIDERATIONS

Marijuana dispensaries have specific real estate needs that also must comply with strict zoning regulations limiting where they can sell or grow the herb, including operating a certain distance from schools, parks and other public facilities. However, properties that fit both the real estate needs and the zoning requirements are often scarce. Startups like the Chicago-based HerbFront (from the minds behind CartoFront) are helping commercial brokers and dispensaries to identify properties that meet these standards. Commercial real estate owners and brokers can also market their properties directly to cannabis entrepreneurs looking to open a business in their neighborhood, who are willing to pay top dollar for the right property. HerbFront also operates a real estate investment arm, HerbFront Capital, LLC, which engages in lease backs to established cannabis operators seeking liquidity from their existing real estate assets or to partner with HFC in the purchase of validated properties for new facilities. Because the marijuana industry comes with an abundance of uncertainty and risk, investing in real estate is quickly becoming a source of control for marijuana entrepreneurs. Aside from the wisdom of investing in real estate to build wealth, for these business owners, owning the real estate where their operations are headquartered is a smart way to safeguard their business investment — so long as the property values hold. Entrepreneurs invest a significant amount of money into their stores and grow operations, and they are starting to recognize that it may not make sense to put so much money into someone else’s building. Property ownership also protects marijuana businesses from skyrocketing warehouse rents after they’ve already invested tens of thousands of dollars to convert the space into a growing operation. This “hard asset mentality” helps cannabis entrepreneurs to avoid an otherwise financially crippling scenario that has become commonplace in the industry. Due to this movement, buildings zoned as “light industrial” are quickly becoming the most valuable properties in many cities. Real estate also helps to solve the problem of banking in the cannabis industry. Accounts are expensive because of the immense amount of compliance work needed, and many banks won’t loan to marijuana entrepreneurs because the drug remains federally illegal, so purchasing real estate with cash profits is an increasingly popular (and relatively safe) option for business owners.

Watch the highlights from our past Forum on Medical Marijuana and Property Management