By Brad Blommer and Ramsey Chamie
If you are entering New York’s regulated cannabis market—as a cannabis producer, processor, retailer, or otherwise—there’s a good chance at some point you will find yourself in a commercial lease negotiation. This blog post explores five cannabis-specific key terms to consider when negotiating your commercial lease.
1. Controlled Substances Act Carve-Out
Cannabis is a Schedule 1 drug under the federal Controlled Substances Act (CSA) and remains illegal under federal law. Leases often contain provisions stating that the tenant will comply with all federal and state laws. Without a carve-out for the CSA, a tenant operating a cannabis business would be in violation of a standard “compliance with all laws” provision and a landlord wanting to terminate a lease early could claim the tenant’s cannabis business is a breach of the lease.
2. Permitted Use
Perhaps you’re reluctant to state in a lease that you’re operating a cannabis business (don’t be) or perhaps your landlord gives you verbal confirmation but does not want to put anything cannabis-specific in writing (push back). Better to be explicit and include your cannabis-related activities as a “permitted use” under the lease. If your landlord won’t agree, it may be an indication that the lease you’re pursuing is not suitable for your intended business.
3. “Illegality is Not a Defense” Clause
Similarly, in the event a dispute with your landlord, you don’t want your landlord making an “unclean hands” defense based on the fact that your cannabis business is illegal under federal law. Even if you follow suggestion #2 above, also consider including a clause that prevents anyone from using the federal illegality of cannabis as a defense to a breach of your lease.
4. Landlord will adhere to OCM Guidance and Regulations
New York’s Marihuana Regulation and Taxation Act (MRTA) established the Cannabis Control Board and Office of Cannabis Management (OCM). The CCB has promulgated regulations, and OCM has issued substantive requirements and guidance, on cannabis facilities. Cannabis facilities (whether agricultural, industrial, or retail) are regulated spaces with specific requirements that must be followed at all times. While you may be familiar with these rules, your commercial landlord may not. To avoid any missteps, consider adding a covenant that your landlord will comply with all applicable cannabis rules and regulations.
5. Cash is King
Some commercial leases are silent as to manner of payment, with the landlord often expecting a wire or check to come in each month. Even if you have a bank account for your new business, you may want a provision in your lease that allows you to pay in cold hard cash. In the event your banking arrangement goes south (it happens), this provision can avoid the double-headache of having to find a way to pay rent when you discover that your landlord does not want to be handed an envelope of cash.
These are five key considerations for New Yorkers looking to lease space for their cannabis business. But there are other provisions specific to cannabis leases that you will want to discuss with an experienced cannabis lawyer (e.g., insurance requirements, consent of lenders (if any)).
You can reach Brad Blommer and Ramsey Chamie at (917) 764-4896 or firstname.lastname@example.org.