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A future marijuana-friendly New York state could have attorneys seeing green as cannabis-based businesses seek assistance navigating the complicated process of state laws, including those related to real estate transactions and landlord-tenant laws.

Legal, adult-use marijuana is estimated to generate $3.1 billion statewide and $1.1 billion in New York City annually, according to a recent report released by New York City Comptroller Scott M. Stringer.

Talk of legalizing recreational marijuana in New York has gone from chatter to consideration following Governor Andrew Cuomo’s January directive to study potential impacts of a “regulated” marijuana program. New York State Department of Health Commissioner Howard Zucker indicated on June 18 that the department will recommend legalization of marijuana for adult use in the state in its final report.

With recreational marijuana legal in neighboring Massachusetts, Vermont and Maine—as well as six other states and Washington, D.C.—many predict that it is only a matter of time before New York State adopts its own regulated marijuana program for adults over age 21.

Areas of New York law, including public health, tax, finance, general business, penal and criminal procedure were amended as a result of the 2014 Compassionate Care Act (CCA), which legalized medical marijuana. Although potential amendments to the Real Property Law are not included in the proposed MRTA, potential amendments should not be ruled out, specifically as they relate to real estate lease and agreement laws, including article 7 of New York Real Property Law §220—if and when recreational marijuana becomes legal.

Federal and State Conflicts

The conflict between federal and state laws creates a complicated situation for landlords and cannabis-based business owners, since marijuana is a Schedule 1 drug, meaning it has no medicinal value, may be abused, and is in the same category as LSD and heroin.

While the federal Controlled Substances Act makes it a crime to rent property on which a controlled substance will be manufactured, stored or distributed, it has not typically been enforced by the federal government. However, the Obama-era policy (the Cole Amendment) of not interfering in states’ marijuana laws was rescinded earlier this year. Attorney General Jeff Sessions announced that it was up to federal prosecutors to determine what to do when state and federal drug laws intersect.

A case challenging marijuana’s Schedule 1 classification was rejected by a federal district court in the Southern District of New York (Washington v. Sessions, III, 17 Civ. 5625 (AKH) (S.D.N.Y. Feb. 26, 2018)), earlier this year, with the judge saying that the Drug Enforcement Administration would be a more suitable forum.

In other developments, the proposed Veterans Administration Medicinal Cannabis Research Act, if approved, would allow the VA to conduct research on the efficacy and safety of medicinal cannabis. If enacted, it could put marijuana’s classification in question.

Commercial Leases

Because of the challenges and complexities that exist with regard to obtaining rental property or real estate for any cannabis-related purpose, potential marijuana growers and retailers could benefit from hiring a real estate attorney. Additionally, examination of state landlord-tenant laws governing the manner in which lease and rental agreements are drafted has the potential for amendments if recreational marijuana becomes legal in New York.

Cannabis entrepreneurs often cannot obtain the proper licenses to sell without first verifying they signed a lease to rent an appropriately zoned property. Yet, most marijuana businesses are not legally allowed to conduct business using credit cards, or to use bank accounts, and the inability to provide these financial documents to potential landlords makes finding space all the more difficult.

Other roadblocks can include situations in which landlords do not want to lease to marijuana retailers because of existing stigmas about marijuana, concerns about federal law (violation of the Controlled Substance Act can result in asset forfeiture) or security concerns due to the cash-only nature of the cannabis industry (due to marijuana’s Schedule 1 status).

As a result of the cash-only nature of the industry, when a landlord deposits more than $10,000 in cash—or money order—the bank is required to submit a suspicious-activity report (a.k.a. SAR) to the federal government, according to Gravel2Gavel, a construction and real estate law blog that has studied the legalization of marijuana and its correlation to the real estate industry.

Other issues facing marijuana business owners include being aware of distance requirements from entities such as schools or parks, as well as zoning laws that limit where cannabis-related businesses can be located.

As for cultivating marijuana, it requires significant lighting and heat usage and can lead to high energy bills for landlords or property owners, that should be addressed in some fashion in any lease. Environmental concerns with regard to how the property and surrounding areas are affected could potentially prompt stricter property regulations.

In California, for example, as of January 2018, marijuana industry licensees must comply with environmental regulations or risk losing their license and face civil fines or criminal prosecution, according to the Drug Policy Alliance.

 Housing

Questions also arise related to marijuana use in multi-family housing or federally assisted properties. Nationwide, bans on smoking in apartments or condos currently does not violate landlord-tenant or fair housing laws, even where marijuana has been legalized by local ordinance or state statute.

The Department of Housing and Urban Development, for example, bans the use of marijuana in federally assisted properties, including medical marijuana use. Landlords may legally adopt policies to prevent smoking of tobacco in common areas and individual units in New York State.

Looking Forward

It remains to be seen how the use of medical marijuana in non-smokable forms could affect state and federal law. Effective Dec. 27, 2017, allowable medicinal marijuana alternatives in New York include “topicals such as ointments, lotions and patches; solid and semi-solid products, including chewable and effervescent tablets and lozenges; and certain non-smokable forms of ground plant material,” according to the New York State Department of Health.

If and when recreational marijuana becomes a reality in New York State, a real estate attorney might just become a marijuana entrepreneur’s best friend.

Jennifer J. Corcoran and Mario D. Cometti are partners at Tully Rinckey in Albany.