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US: Obtaining a cannabis lease agreement for your cannabis license

While the specific prerequisites for obtaining a cannabis business license can differ notably between states and even counties, numerous jurisdictions mandate that individuals seeking such a license must first secure a physical establishment for their business. This typically entails presenting a signed lease for the cannabis operation unless the applicant is the owner of the property.

Why do state licensing agencies for cannabis require a lease commitment as part of the application process?
Cannabis licensing authorities often require a lease agreement as a means of ensuring compliance with regulations and maintaining accountability for businesses operating within their jurisdiction. Here are a few reasons why licensing authorities may require a cannabis lease agreement:

  • Proof of physical address: A lease agreement provides documented evidence of a business's physical location. In many states, cannabis licenses are linked to the location in which the business conducts activity.
  • Verification of operational control: By requiring a lease agreement, licensing authorities can confirm that the business has exclusive rights to operate in a specific space. This helps prevent unauthorized businesses from operating and ensures that the licensed entity has control over the premises.
  • Compliance with safety and health standards: A lease agreement may contain provisions related to safety and health requirements, such as building codes, fire safety regulations, or sanitation guidelines. Licensing authorities can review these agreements to ensure that businesses are operating in a safe environment and meeting the necessary standards.
  • Stability and long-term operation: Licensing authorities aim to ensure that businesses have a stable operating environment. A lease agreement demonstrates that the business has a commitment to a specific location for a defined period.

It's important to note that specific requirements for lease agreements may vary depending on the jurisdiction and the type of business being licensed. Licensing authorities typically outline their expectations regarding lease agreements as part of their application processes and guidelines.

Challenges and considerations to obtaining a cannabis lease agreement

  • Federal cannabis laws. Under federal law, the sale, distribution, utilization, possession, and extraction of marijuana remain illegal. Many landlords are hesitant to enter into leases with cannabis companies, primarily due to concerns about the potential legal violations of federal laws or the negative reputation associated with the cannabis industry. Moreover, commercial landlords may encounter restrictions in their mortgage agreements that prevent them from leasing to cannabis companies. In many standard mortgage contracts, there are clauses that mandate borrowers to adhere to all relevant laws, rules, and regulations.
  • Zoning laws. In legalized states, counties and cities may still restrict cannabis business locations. Zoning ordinances often limit the number of businesses and require minimum distances from schools, daycares, other dispensaries, or treatment facilities. Some jurisdictions allow only cultivation or retail, not both.
  • Restrictive covenants. Real estate deeds and leases frequently include restrictive covenants that dictate the permissible uses of a property by owners and tenants. In some cases, landlords may have preexisting restrictive covenants with other tenants that would prohibit them from leasing to a cannabis-related tenant.
  • Availability of Insurance. Both the property owner and the cannabis business tenant must consult their insurance brokers before signing a lease to ensure appropriate coverage consistent with the lease. Insurance companies may deny claims if they relate to illegal activities, highlighting the need for clear communication regarding the marijuana-related nature of the business.

Conclusion
To ensure a smooth license application process, cannabis companies should allocate sufficient time beforehand to secure the necessary property. It is important to account for the potential time required to find a willing property owner before the application deadline approaches.

For more information:
Wolters Kluwer
wolterskluwer.com

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