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Weed Wary: Lenders Should Use Caution When Borrower’s Property has Marijuana-Related Use

Commercial real estate lenders must be wary of a borrower who is either conducting a marijuana-related business on its property or leasing to a business involved in any way in the marijuana business, even though state law may allow it.

While state laws (like Maryland and the District of Columbia) may permit the cultivation, distribution, manufacture, or sale of marijuana for medical purposes, lenders secured by real property associated with “legal” marijuana businesses should be aware of the federal laws related to marijuana, which remain in direct conflict with certain state laws.

On January 4, 2018, Attorney General Jeff Sessions reversed prior federal policy tolerating commercial distribution in states that had legalized either the recreational or medical use of marijuana, now allowing federal prosecutors to decide how to prioritize resources to crack down on possession, distribution, and cultivation in states where it is legal.

Federal law still categorizes marijuana as a “controlled substance.” As such, criminal penalties apply to those who not only possess or distribute marijuana, but those parties who assist any other person in violating the Controlled Substances Act (with the same penalties that apply to the offender).

Title Insurance Denied

Most title insurance companies will not insure property that is or will be used in some capacity for growing, producing, distributing, or dispensing of any type of marijuana or marijuana products, due to money laundering issues and federal forfeiture laws. A recent addition to several title insurers’ commitment for issuing an owner’s or lender’s title insurance policy is the following:

“…due to the conflict between federal and state laws concerning the cultivation, distribution, manufacture, or sale of marijuana, the company is not able to close or insure any transaction involving Land that is associated with these activities.”

It should also be noted that receiving funds from marijuana businesses constitutes “money laundering” under federal law and subjects the recipient to federal prosecution.

Larry Lerman is a commercial transactions attorney who closes deals for real estate owners and investors, banks, and other businesses. Alison Rind is a commercial lending and real estate attorney who represents commercial lenders in loan transactions and other commercial matters. For more, contact Larry at lglerman@lerchearly.com and Alison at awrind@lerchearly.com.

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This content is for your information only and is not intended to constitute legal advice. Please consult your attorney before acting on any information contained here.

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