Megan E. Moyer, left, and Kevin M. Levy, right, of Saul Ewing Arnstein & Lehr.

Fifty years ago, the first states began to decriminalize simple possession of marijuana. Shortly thereafter, some began to authorize the use of marijuana for medicinal purposes. Ten years ago, Colorado and Washington broke barriers by authorizing individuals older than 21 to use marijuana recreationally and that number has since expanded to 11 states across the country. Today, in 22 additional states (33 total), at least some form of medical marijuana is legal, introducing a budding new industry of prospective marijuana-related tenants to the market, including dispensaries and growing facilities. Nevertheless, marijuana business advocates still face legal risks since the substance in most forms remains illegal under the federal Controlled Substances Act.

The quick nationwide expansion of laws related to the legalization of marijuana has resulted in a patchwork of inconsistent regulations among states that are all ultimately irreconcilable with the still-existing federal prohibition on marijuana consumption. However, bipartisan majorities support legalizing recreational marijuana and that number is expected to continue to trend higher every year. Even though the Trump administration has not taken the same favorable stance toward state legalization efforts as the Justice Department did under President Barack Obama, federal enforcement of marijuana-related crimes are rare due to a lack of appetite for such prosecutions and other local discretionary concerns.

In addition to the multitudinous legal and business issues facing cannabusiness operations, here are four leasing issues that real estate attorneys and professionals dealing with marijuana-related businesses (MRBs) and landlords should consider:

Marijuana Businesses Are Unique Tenants

Commercial marijuana businesses should be conscious of their unique position and needs as purveyors of marijuana-related goods, medical or otherwise. The Pennsylvania Department of Health has issued a 40-page "operational checklist" outlining the unique and numerous regulations associated with dispensary sites, with well over 100 criteria that must be implemented or considered for dispensaries regarding issues such as secure off-loading sites, signage and surveillance systems.

Cannabusinesses will have many concerns that they will need to prioritize in leases, a pair of which include security and utilities.

Pennsylvania law requires dispensaries to provide security to keep out minors, and most marijuana businesses are all-cash or cash-heavy, necessitating certain safeguards. Which party is responsible for providing that security? What security can the tenant provide for its own unit? Will the landlord designate funds for a tenant allowance for the build out of dispensary security? How will security for neighboring properties be addressed?

Additionally, marijuana businesses that include growing facilities are likely going to have incredibly exacerbated utilities bills due to marijuana growth requiring light, warmth and large amounts of water. Though many commercial net leases pass the cost of utilities directly to the tenant, excessive uses might result in either party focusing heavily on utility responsibility in negotiations.

NIMBYs Are Spreading

Recently, the trend of not-in-my-backyard (NIMBY) laws across the country has proliferated. Philadelphia is not immune; the city has restricted dispensaries and growing facilities from many neighborhoods. Dozens of New Jersey towns have already preemptively banned recreational marijuana from their municipal borders, even though the state has not yet legalized it.

MRB tenants have much to contend with during the start up of their businesses and municipalities can add to their troubles by layering yet another level of government regulations on these tenants for items like signage, distance from schools, or categorically banning the industry from certain areas.

Marijuana businesses are well advised to engender strong relationships with their local municipal partners to ensure the stability of their trade. Pennsylvania has not enacted any statewide preemption statutes that would prohibit municipalities from further regulating marijuana businesses, so the field is still awash with burdensome compliance regimes.

Finance Access

One issue routinely discussed in cannabis law is among the most important faced by all business owners: financing. Since marijuana is still listed as a Schedule I drug under the Controlled Substances Act, many financial institutions, especially banks, are understandably wary of venturing into the field and providing financial assistance (or even basic banking services) to cannabusinesses. Such businesses often lack access to bankruptcy protections that may dissuade potential creditors, including private financiers, from engaging with those businesses.

When engaging with potential non-bank lenders, setting up a solid cash management program could be fraught with difficulties, including transporting hard-earned cash in bags and armored cars filled with armed security guards. These complications can turn off even the most optimistic landlords, though marijuana businesses have been known to pay premium rents.

Marijuana Commercial Leases

The trend toward expanding the complete legalization of marijuana appears to be continuing. Prudential landlords and tenants should contemplate the future: what would happen if a state that currently authorizes medical marijuana, like Pennsylvania, were to legalize recreational marijuana down the road? Would the landlord be content with the permitted use automatically encompassing recreational sales? Does the tenant have business plans to expand their operations to include recreational marijuana? Permitted use provisions in leases should contemplate these types of changes.

All in all, commercial landlords should prepare for potential marijuana business tenants—they are coming. Cannabusinesses should prepare for an uphill journey to establishing a successful business. All involved in the marijuana industry should prepare for the constant change and unpredictability facing the industry in the coming years.

Megan E. Moyer is an associate in Saul Ewing Arnstein & Lehr's real estate practice focusing on all aspects of transactional real estate law. She can be reached at [email protected].

Kevin M. Levy is an associate in the firm's real estate practice focusing on all aspects of transactional real estate law. Contact him at [email protected].