​Medical Marijuana Commercial Tenant?

19 Replies

In San Diego County, CA.  We're trying to lease a 4000sf retail space.  We've had 2 Medical Marijuana prospects contact us.  We understand that there may be banking problems.  Are there other things to be weary of?  I'm concerned about some sort of scam?

In many areas cities are trying to eradicate that particular use from their jurisdiction. There is still much controversy over the legality of that product in California.

The city of Los Angeles, and many other cities in So Cal, have taken strong stances against tenants in buildings concerning their use, their occupancy permits, and their stringent review of the premises which may or may not impact the landlord depending on the city's findings.

I'm in the CRE business and I won't have anything to due with this type of tenant. They'll offer to pay as much as 2X market rents sometimes. The thought of having the deal with local government building & health departments persistently finding problems, DEA agents, and possibly other agencies should the tenant do something illicit in their business is just not worth the rent, and or the xtra rent.

@Jon A. the banking issue would be their not yours which means they likely can only pay you in cash or money order for their rent. As a retired cop I can tell you that you will run the risk of having your property seized by the DEA if you knowingly allow the business to operate in your building... or at least that was the case a couple years ago when I was still on the job. Who knows how it is these days our D.A. refuses to even deal with the possession cases.

What city is the unit in? That is the most important determining factor. Federal funding for med shop busts has been cut, so city ordinances are what you really need to worry about. Some cities are pretty cool with it. Others will bust every shop.

Ramona.  It's a small town governed by San Diego County.  It's our understanding that the county isn't even allowing any more permits for the rural areas.  Causing us even more confusion.

If the Feds get wind of a mmj tenant they may start by sending you a letter to get rid of that tenant within a certain time frame and if you don't, your property may be subject to seizure.  The bigger issue may be that your lender will have an issue with the mmj tenant, that is if you have a loan on it.  

Put a clause in the lease allowing you to terminate at any time with 30 say notice, the mmj tenant may actually want that as well.  Then cash in!!

I checked weedmaps.com for dispensaries in Ramona. There are four delivery services, and no walk in dispensaries. Delivery services are much easier to get approved than brick and mortar med shops. If you only see delivery services in an area that is a huge red flag. If it was cool to open a shop there, you'd see them around already.

Besides all of the other reasons not to rent to them, I would be scared of people trying to break in your building, trying to steal the marijuana.  We've had people try to break into a commercial building of ours (in a good area of town) that has doctor and dentist tenants in order to try to steal drugs. I cannot even imagine the idiots that would try to break in a marijuana dispensary. 

It is a CASH cow here in Denver. Literally. Rent gets paid in a brown bag. Places charge a premium if you can find one. California might have a bit more risk since you guys don't have the same structure in place like we do as far as feds, etc goes.

High deposits, landlords asking to keep all improvements/equipment if tenant leaves, etc are all common. Just make sure they have money backing them. The last thing you want is a tenant that can't pay up. 

Thanks @John Arendsen . I've really been doing my homework on this and looked at buying a dispensary in Lemon Grove, CA. Very quickly, what I noticed on WeedMaps.com is that you can find walk-in dispensaries in the areas policed by the sheriff's department but not in the jurisdictions with their own police departments. Not sure why that is other than maybe the sheriff's department is hands off right now because of the status of the contradictory laws between state, fed and the cities.

Lending may be an issue but zoning is a real problem with marijuana dispensaries. 

If anyone is interested to know more I have a contact for you- they own software that identify properties around the US with appropriate zoning. PM for more info. 

I'm late getting into this Thread. I am a Commercial Real Estate appraiser & am currently appraising a 48,000 SF industrial complex (four 12,000 SF metal buildings) in Adelanto, CA in the High Desert of the Victor Valley.

My building and two others are In Escrow at HUGE price increases over what these buildings were selling for Pre-MJ Ordinance by the city. Buildings are In Escrow for $4,000,000

I have also obtained lots of data for the City of Desert Hot Springs which has a more developed market at this point.

I would like to interview any investor involved in the real estate end of the Medical MJ industry - listing, selling, buying, and/or leasing buildings which will be used for cultivation.

John C. Carlson

Have to see my listing to get my contract info. Have tried to put it in in previous posts & was told that wasn't allowed. 

Good thread so far, We have had many request for funding for various MJ related facilities and the biggest issue we can not get around is the Federal min. sentencing rules. Most agree that as a landlord or lender you may be limited to seizure and fines but the Federal Law still considers MJ illegal and the Federal Laws are still in full force. So, while highly unlikely, there might be scenarios where the landlord and or lender could be subject to the full extent of the law which includes JAIL TIME. I would highly recommend that you use a good atty. to set up the lease and maybe set aside some of those payments to hire a good criminal atty. should you need one latter.

ps. John - I used to be an appraiser and I believe that if you are appraising this property for a Federally insured institution or one regulated by a  Federal agency, you cannot value the property based on illegal activity since the appraisal needs to conform to federal standards.

Also, just know that your insurance will likely be more expensive for your property insurance, as the regular carriers do not write this type of insurance (at least not here in Washington State). No State Farm, Allstate, Foremost, etc. You will need to get special insurance, and the tenants will need to do the same; which may be a cost you pass on to the tenant.

Obviously they will also need to get insurance for their business too, depending if they are a retailer, processor or grower. Again, I'm not sure about California, but in Washington, the Liquor & Cannabis Board have specific guidelines around the types of safe you have to have on premise, as well as cameras, etc, in respect to the security issues that someone mentioned earlier in the thread. I'm not sure what California does or does not require, so as a landlord, you'd want to be aware if there would be some sorts of special tenant betterment & improvements that would be completed on your property.

Insurance would be a big question for you?

I have a few specialty carriers that that I know of that will write the risk, however your existing insurance carrier will most likely not write it. I would put in the lease that they are responsible for carrying the insurance on the building with minimum specified limits. You need to be listed as a lessor and as a certificate holder. This will give you notice if their policy ever terminates for any reason.