Just last year, New York became the 15th state to legalize adult-use cannabis use and sales. This landmark decision for the state opened the gates to what is projected to become one of the highest-earning cannabis markets in the entire country, even out-earning California.
With lots of people trying to enter this legal market, there are many cannabis entrepreneurs rushing to enter this lucrative market. Being able to secure the property for your cannabis business begins and ends at the bargaining table for a commercial lease. Understanding these five terms will help you navigate your way through a commercial lease.
1. Controlled Substances Act Carve-Out
Under the Controlled Substances Act Carve-Out, Cannabis is a Schedule 1 drug and is illegal under federal law. These leases frequently contain language and provisions stating that renters will comply with federal and state laws. A lease without the inclusion of a carve-out for the Controlled Substance Act would result in the tenant being in violation of the “compliance with all laws” provision. This gives landlords the power to terminate the lease early on the grounds that the cannabis business was in violation of the lease.
2. Permitted Use
You may be hesitant to tell the property manager you’re negotiating with that you intend to operate a cannabis business on the site. Don’t hesitate! Being upfront and honest with intent is the best way to not only gain favor with the other party but also quickly weed out properties that won’t be able to suit your needs. If at all possible, be sure to get a clause included in your lease that classifies any and all cannabis-related operations under “Permitted Use.”
3. “Illegality is Not a Defense” Clause
Another potential roadblock that could arise when negotiating with a landlord is an attempt for them to make an “unclean hands” defense, law doctrine which states in a breach of contract case, tenants are not entitled to an equitable remedy under the idea that their operation is illegal under federal law. Along with suggestion #2, it would be wise to consider including language that prevents them from using federal criminal status of cannabis as a valid breach of your lease.
4. Landlord will adhere to OCM Guidance and Regulations
The Cannabis Control Board (CCB) and the Office of Cannabis Management (OCM) were established as the governing bodies of cannabis operations within the state of New York under the Marihuana Regulation and Taxation Act (MRTA). The CCB has put together and made known the regulations for cannabis businesses, while the OCM issues substantive requirements on cannabis facilities. Cannabis businesses must follow these regulations and guidelines religiously. You, as the business operator may be familiar with all of these regulations and guidelines, but your landlord may not be. In order to ensure that you and your landlord are on the same page, add an agreement that your landlord will also comply with all applicable laws.
5. Cash is King
Banking is a bit of a grey area when it comes to the sale of cannabis as well as other federally prohibited items. Due to federal prohibition, many banks are difficult to use digital payments through debit or credit cards. This means that a large portion of your company’s revenue will consequently be in cold hard cash. Some commercial leases don’t mention the manner of payment and often assume a check will be wired or written out each month. To make things easier for yourself, consider including a provision that allows you to pay your monthly bill in cash you will have on hand.
These 5 terms and considerations will help you and other New York cannabis entrepreneurs alike looking to find properties to run their businesses. While this list is important, it is far from all there is to know, and you may want to speak to experienced cannabis professionals to help your business go from a dream to a reality. Schedule a consultation with Greenlight Business Solutions today!
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As a fourth year journalism student at the University of South Carolina, Jacob is passionate about providing the most up-to-date stories. Jacob follows Illinois news, cannabis advertising, cannabis in sports and first-time cannabis consumers. With experience in product manufacturing and customer relations, Jacob adds immense value to the team. Currently, Jacob resides in Chicago and has experience working with the Chicago White Sox.