Medical Marijuana Risks for Cultivation Lease Landlords

January 9th, 2018

It may be tempting for a farming operation with fallow acreage to consider leasing to a tenant for above-market rents. However, when the offer is coming from a marijuana grower, the would-be landlord will have a number of additional legal issues to consider.

It bears repeating that marijuana is still illegal as a Schedule I drug under the Federal Controlled Substances Act. Even though Oklahoma is likely to approve marijuana for medicinal use this Summer, the federal government doesn’t recognize such use as valid and prohibits the manufacture, sale, and distribution of marijuana. An owner who leases to a tenant for the purpose of manufacturing, distributing, or storing controlled substances, illegal under federal law, is punishable under the Controlled Substances Act by a fine and up to 20 years in prison.

That might be the end of the story for most landlords. This is especially true now that the Trump Administration’s Justice Department has signaled that it may take a different path with respect to marijuana prosecutions. The U.S. Department of Justice could seek to take real property used in connection with marijuana-related crimes of tenants through civil asset forfeiture. For landlords who determine that the potential revenues are too great to pass up and their risks associated with federal prosecution or civil asset forfeiture are immaterial, there are still other concerns. A landlord may find that a conservative financial institution could refuse to accept deposits of funds related to a marijuana grow operation lease. Also, if the landlord has a loan from a financial institution, the landlord may find itself in breach of that loan without available replacement financing.

Most loan agreements prohibit the borrower from violating the law, and if the loan was entered into more recently, there may be express prohibitions against use of the property with respect to state-licensed marijuana-related businesses. Thus, a financial institution could call a loan due from a landlord renting to a marijuana grow operation. If there is an opportunity for replacement financing, the loan amount may be reduced (if the financial institution excludes rents from the marijuana-growing tenant when calculating the value of the collateral or the revenues of the landlord).

Oregon and Colorado federal bankruptcy courts have come to the conclusion that bankruptcy protections are not available to a landlord leasing to a marijuana business, even if the tenant’s marijuana business is operated in compliance with state law. Federal bankruptcy courts in Oklahoma may come to the same conclusion. Some of this risk can be mitigated with proper planning, but there would always be some portion of the landlord’s business operation that would remain at risk.

Aside from the issues concerning federal law, a landlord could find itself at risk of violating state law if its tenant is not in compliance with state and local regulations.

Unless and until the Controlled Substances Act is changed to permit the state-legalized marijuana activities, landlords should be wary of leasing to marijuana grow operations and should consider the other risks and potential obligations of having such a tenant. At a minimum, before you negotiate a lease, make sure you have a cannabis lawyer help you guard against potential pitfalls down the road. The cannabis industry is unlike any other industry, and there are several factors to consider before you lease.

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Governor Mary Fallin Sets Election Date for Medical Marijuana Issue

January 4th, 2018

OKLAHOMA CITY – Governor Mary Fallin today set a June election date for the medical marijuana ballot measure.

Fallin filed an executive proclamation placing State Question 788 on the June 26 primary election ballot. The governor’s other option was to place the issue on the November general election ballot.

Supporters of an initiative petition asking voters to legalize medical marijuana gathered enough signatures in 2016 to schedule a statewide referendum on the measure.

“Backers of this proposal to legalize medical marijuana followed procedures and gathered the more than 66,000 required signatures to submit the issue to a vote of the people,” said Fallin. “I’m fulfilling my duty as governor to decide when that election will occur this year.”

If approved by voters, the measure would permit doctors to recommend a patient, who is at least 18 years old, for a state-issued medical marijuana license. A license holder would be allowed to legally possess up to 3 ounces of the drug, six mature plants and six seedlings. These limits can be increased by individual counties or cities.

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Cannabis Law Update: Cole Memo Recinded

January 4th, 2018

Attorney General Jeff Sessions today issued a Memo that rescinds the 2013 Cole Memo regarding federal enforcement in states that legalized cannabis. It is not immediately clear how the Justice Department’s new approach will affect the Rohrabacher-Blumenauer budget amendment that prohibits the use of federal money to interfere with state-authorized medical marijuana use. That budget rider remains in effect until January 19, 2018, when the current continuing resolution that maintains present federal spending levels and priorities comes up for renewal. If the Rohrabacher amendment is not added to the next spending bill, all Federal cannabis protections that were put in place over the past few years will be undone and the Department of Justice will have a green light to start prosecutions in the many states that have legalized cannabis in some form.

Also to be considered is a 2016 ruling from the 9th U.S. Circuit Court of Appeals interpreting the Rohrabacher-Blumenauer amendment and finding that it bars federal prosecutors in the nine Western states that are part of the 9th Circuit from proceeding with criminal cases against medical marijuana sellers complying with state law (Oklahoma is in the 10th U.S. Circuit). The Justice Department will abide by that ruling in the 9th Circuit states, but might bring new enforcement cases in other states not covered by the decision.

Stay tuned.

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If Medical Marijuana Businesses Are Legalized In Oklahoma What Clauses Should Your Lease Include?

December 24th, 2017

As Oklahoma citizens consider State Question 788, landlords and property managers need to know how to address medical marijuana use in their buildings.

The supremacy clause in the U.S. Constitution says that states must not (and cannot) enact laws that conflict with Federal law—but states have been doing just that when it comes to legalizing marijuana. Until now, the Federal government’s marijuana policy has been to essentially turn a blind eye to the changing marijuana laws. And now Oklahoma will consider SQ 788 and possibly another ballot measure in 2018 to legalize medical marijuana. Half of the states, including Arkansas, and the District of Columbia have already legalized medical marijuana so it is a safe bet that marijuana will be legalized in some form in Oklahoma. Although cannabis remains illegal under Federal law, the U.S. Drug Enforcement Agency — which made marijuana a primary target in its “war on drugs” — is considering reclassifying it as a Schedule II drug, which could open the door to decriminalizing pot on a Federal level.

As a result, Oklahoma landlords and property managers could face new considerations when it comes to how marijuana laws affect their lease agreements. There are a number of scenarios related to marijuana legalization you could find yourself in, but if you stay informed, you can take steps to address any changes in the legal landscape.

If Oklahoma Legalizes Medical Marijuana…

Landlords and property managers are not required to accommodate recreational pot use under state law, but they may choose to make some exceptions for tenants who use marijuana for medical purposes. Still, that doesn’t mean you have no control over how it’s used inside your building. And unless federal law is changed, you may still prohibit marijuana use in any form.

One of the first things you need to decide is whether you want to allow smoking of any kind in the building (e.g., rent houses). Tobacco, for example, is a legal substance nationwide, but most property and business owners — restaurants, bars, apartment buildings — have the right to ban smoking cigarettes inside. The case for marijuana is no different.

You can easily add a few sentences to your lease agreement prohibiting smoking or using tobacco or cannabis on the property. However, there are other ways to use medical marijuana besides smoking it, such as using a vaporizer, eating THC-infused edibles, or using cannabis tonics and extracts. You could choose to specify which types of usage are allowed onsite, as long as you include this clause in the lease agreement.

It is extremely important for landlords to recognize that they may be dealing with a medical marijuana tenant who may have a disability as defined under the Fair Housing Act. So, for example, it would not be a good policy to reject a rental applicant because the person uses medical marijuana to treat a disability. It may be better to simply inform the applicant that smoking marijuana or growing plants is not allowed on the property, and give the disabled applicant the opportunity to decide whether to pursue the vacancy (or use other forms of medical marijuana such as edibles). Past drug addiction also is protected under anti-discrimination statutes, and is not a topic that should be explored during tenant screening.  Because the use of marijuana remains a Federal offense, there is an argument that you may deny a reasonable accommodation claim for the use of medical marijuana under the Federal Fair Housing Act. However, the Federal Courts are not in agreement on this issue and the law is changing. In the employment area, courts have denied medical marijuana as a reasonable accommodation. Given the Federal government’s express intention to not allow US Department of Justice enforcement of the law prohibiting the use, sale and cultivation of medical marijuana (Specifically, see page 230: Section 537 of the Consolidated Appropriations Act of 2017), this may lead Oklahoma state courts to be more lenient when it comes to requiring reasonable accommodations.

What Can Landlords Do to Regulate Marijuana Use?

There are a number of strategies that landlords may employ to prohibit marijuana use. It is helpful to remember the reasons why landlords may want to regulate marijuana — for instance, to minimize tenant complaints, to minimize property damage, to reduce crime, and so on. The most encompassing strategy is to prohibit marijuana possession and use because it is illegal under Federal law.

If Oklahoma does legalize medical marijuana, it will very likely apply only to tenants over the age of 21. Those landlords who manage student rentals and typically deal with younger tenants, would want to ban marijuana use entirely. Marijuana use or cultivation may be viewed as a disturbance which violates other tenants’ quiet enjoyment.

Here are some marijuana addendum clauses that can be included in a lease to specify the approved cannabis use:

  1. The use of tobacco and cannabis in accordance with state law is allowed on the Premises. Prior written consent of the Landlord is required before medical cannabis may be grown on the Premises.
  2. This is a nonsmoking residence. No smoking, including medical marijuana, inside the home or on the Premise is permitted. However, consuming medical marijuana with a vaporizer or in cannabis edibles, tonics, or concentrates is permitted.
  3. No recreational or medical marijuana may be grown or consumed on the Premises by the Tenant(s) or guest(s) without the prior written consent of the Landlord. 

If Oklahoma Does Not Legalize Medical Marijuana…

Then you don’t specifically need to address cannabis in your lease agreement because it automatically falls into the category of illegal activity. But — and this is a big but — with legal attitudes toward marijuana changing as fast as they are, your opportunity for recourse may become more complicated if you don’t explicitly address its use. You should include an anti-drug policy in your lease agreement, or include an anti-drug and crime addendum specifically outlining its prohibited use. Here’s an example:

“Usage of cannabis and any other federally prohibited drug is not allowed on the premises. Further, tenant and their guest(s) may not engage in any illegal drug-related activity, including but not limited to medical cannabis on or near the premises. Landlord may terminate this agreement if tenant and/or guests engage in such activities. If this provision is violated, tenants will be subject to charges, damages, and eviction. Tenant forfeits their security deposit if there is any evidence of cannabis use on the premises.”

Can You Evict a Tenant for Using Medical Marijuana?

Currently in Oklahoma all marijuana is banned, so issuing an eviction notice to a tenant who violates your anti-drug policy or anti-marijuana clause is fairly straightforward. But even if medical marijuana is legalized, you have the right to evict tenants who violate the terms of your lease, which would be an eviction for engaging in federally illegal activity. If you ban smoking marijuana — but not other forms of consumption of the drug — and a tenant continually violates that term, you can evict. This is why it is so important for a landlord to clearly state the rules concerning marijuana use in their lease agreements.

Can You Ban Growing Marijuana on Your Property?

When it comes to cultivation, you would want to require tenants to receive written consent from the landlord before growing cannabis on the premises. The language of the written consent should allow the landlord or property manager to inspect the unit from time to time to ensure that tenants are not growing more cannabis than is legally allowed.

Something to keep in mind: Cultivation often requires higher electricity and water usage—and plants require a lot of moisture, which can be harmful to the building. So you have very legitimate reasons to prohibit all cultivation on the premises.

Final Thoughts

After you have a marijuana policy in place, be sure to enforce it consistently among all tenants. “I would advise a landlord that you need to uniformly enforce the rule,” says Oklahoma Real Estate lawyer Brian Huddleston. “You can’t just pick and choose, because then you could face some discriminatory blowback.”

Hopefully, landlord-tenant disputes about marijuana use will be covered by a well drafted lease agreement. Complaints typically come from other tenants who are concerned about marijuana smoke or odors. If you find yourself in this situation, act quickly in devising a solution that works for all parties—for example, perhaps the marijuana user would happily switch to edibles.

Over the last 20 years, the number of states allowing use of marijuana has been increasing, and with a recent poll showing over 60% of Americans support legalization, we can expect that trend to continue. The implications for real estate are numerous. The conflict between Oklahoma and Federal law creates extra considerations. Owners/managers should take care to be up-to-date on the laws, and ensure their lease provisions specifically address their policies related to these laws along with any other special considerations.

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Oklahoma voters will get the chance to legalize medical marijuana in 2018.

December 9th, 2017

While supporters had gathered enough signatures to place the measure before voters in 2016, advocates had filed a lawsuit against then-Attorney General E. Scott Pruit after he rewrote the initiative’s ballot title, delaying the vote. Advocates were successful in their lawsuit earlier this year, when the Supreme Court of Oklahoma ruled 7-1 in their favor. The measure will appear on the ballot as State Question 788. The finalized ballot title, which is the original title submitted by opponents, was formally approved by Oklahoma Secretary of State. The measure will most likely appear on the November 2018 ballot, unless Oklahoma Governor Mary Fallin calls a special election for the measure. If approved by voters, medical marijuana would be subject to a 7 percent sales tax.
The full text of the proposal can be found here.

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Legislature expands Oklahoma’s high-CBD law

December 9th, 2017

Oklahoma has expanded its limited protection for patients who use low-THC, high-CBD cannabis oil for certain medical conditions, which was initially passed in 2015. HB 2835 allows adults to use low-THC cannabis oil (minors were already covered by existing law) and added “spasticity due to multiple sclerosis or due to paraplegia, intractable nausea and vomiting, and appetite stimulation with chronic wasting diseases” to the list of qualifying conditions, in addition to severe epilepsy. Click here for a summary of the law.

Unfortunately, it is still hard for patients to gain access to cannabis oil in Oklahoma. And, as with all current laws providing access to high-CBD products, the law is very limited and leaves behind most patients who could benefit from whole-plant medical marijuana in various forms, such as people with cancer, intractable pain, and other serious illnesses. For a broader look at CBD laws and where they fall short, take a look at an analysis available here.

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Oklahoma State Question 780 made all marijuana possession offenses misdemeanors.

December 9th, 2017

On November 8 2016, 58% of Oklahoma voters supported State Question 780, which makes all marijuana possession offenses misdemeanors effective July 1, 2017.

Oklahoma still has further to go, as the penalty for first-time marijuana possession will remain up to one year of incarceration and a fine of up to $1,000. Removing possible jail time for marijuana possession altogether, as 21 states have already done, will allow police to focus on solving violent and property crime. In addition, enforcement of these laws is racially biased. According to this report by the ACLU, African Americans in Oklahoma are 2.9 times more likely than whites to be arrested for possession of marijuana, even though blacks and whites consume marijuana at similar rates.

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Street Law School: I passed a School Bus and they want to suspend my driver’s license for a year! Now what?

November 9th, 2017

If you do not stop when those red lights are activated for a school bus, or a church bus, and you drive past that bus, in addition to a fine and other penalties such as points on your license and record, you’re going to lose your driver’s license for a year. The law is found at 47 O.S. § 6-205.A.11 (OSCN 2017). The purpose of this article is help people from being shocked by finding out after they have paid a fairly small ticket that they are losing their driver’s license. When you get a ticket that is for anything more than a minimal speeding ticket, you should contest the charge. Failing to do so can be devastating for a family, for wage earners or for moms who drive to and from school and work.

Oklahoma DPS will suspend your Oklahoma driver’s license if you’re convicted of illegally passing a school bus or a church bus. You must act quickly if you have received a notice of driver’s license suspension for this offense. You may have received a ticket in the mail for meeting or overtaking a school bus. The police don’t even have to be present at the time of the alleged violation for you to receive the citation. The school bus driver who observed the alleged violation merely needs to fill out a simple report and submit it to the police within 24 hours of the violation. 47 O.S. § 11-705.D (OSCN 2017).

While paying the $100.00 ticket may be the easiest and quickest thing to do, it also is the equivalent of pleading guilty to the offense. You should instead request a hearing for the ticket. Often the school bus driver is unable to identify the person who allegedly passed the bus. If convicted of passing a school bus or church bus, Oklahoma DPS will suspend your Oklahoma driver’s license for one year and add 4 points to your driving record according to the Oklahoma license points schedule.

If you received a passing a school bus ticket in the mail or notice of license suspension, you should talk to an attorney about having the conviction overturned and appealing the suspension. 

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Fast Evictions

September 25th, 2017

In the unfortunate event you have to move forward with an eviction, you will likely want to evict your non-paying or nuisance tenant(s) just as quickly as the law allows. When you have tenants in your properties that aren’t paying or are in violation of their Rental/Lease Contract, acting quickly will minimize the amount of lost rent, vacancy loss, property damage and make ready expenses.

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Victory On Appeal (Again)

September 18th, 2017

I am pleased to announce that I have another recent appellate court victory. This time in an unreported case where, as is often the case, the trial court granted the bank’s motion for summary judgment for foreclosure against the homeowner, but the Oklahoma Court of Appeals reversed and remanded the case, finding that there exists a material issue of disputed fact as to whether HSBC was the holder of the promissory note at the time that it filed its amended petition. The opinion makes it clear that a motion for summary judgment in a foreclosure case must present undisputed facts supported by acceptable evidentiary materials  showing that the bank is a person entitled to enforce the note at the time that the petition is filed. The bank’s evidentiary materials were deficient because it had made inherently contradictory allegations in its pleadings and affidavit in support of its motion for summary judgment. Here is a link to the slip opinion: HSBC vs Williamson.

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