16C — December 22, 2017 - January 11, 2018 — The Year in Review 2017 — M id A tlantic

Real Estate Journal


Year in Review 20147 Year in Review 2017

By Jack Fersko, Jo Ann Gambale, and Mitchel S. Kay * The Business of Marijuana


arijuana use for me- dicinal purposes can be traced to 2737

and remains, a Schedule I drug under the federal Con- trolled Substances Act. Nev- ertheless, presently twenty- eight states have legalized marijuana for medicinal purposes and 8 states and the District of Colombia for recreational. It is predicted that the field will grow to a $50 billion industry by 2026. The impact of the canna- bis industry on real estate markets with legalized recre- ational use has been extraor- dinary. Industrial rents are reported to have risen 33% from the first quarter 2014

throughMay 2017 in Denver, and 27% in Seattle and Port- land, compared with a 19% increase in 54 of the other largest U.S. markets. Sales price premiums are reported between 20% - 40%. Although New Jersey le- galized medical marijuana, only 6 facilities have been licensed. If Governor-elect Murphy’s stated intention to legalize recreational mari- juana is successful, the ex- pectation is that New Jersey will rapidly become one of the major cannabis markets in the country. Legalization will

present a number of issues impacting the use, growing, selling and dispensing of marijuana. As marijuana remains illegal under federal law, landlords and tenants will have to properly address lease provisions that are oth- erwise “boilerplate,” includ- ing compliance with laws, permitted use, maintenance, common area responsibility, default, termination, aban- donment and indemnity. Property managers need to consider a host of issues, including, as an example, tenants’ rights to reasonable

accommodations, the right to grow and smoke marijuana, and security concerns. Mari- juana operations also pose unique insurance issues that stem from the high usage of water, the highly flammable nature of certain process- ing techniques, and the in- creased need for security. There also are title insurance issues, as title insurers have indicated they will not close or insure a transaction in- volving land associated with the marijuana industry. Tax and other economic is- sues also must be addressed. Section 280E of the I.R.C. disallows deductions for ex- penses incurred in the busi- ness of producing or selling marijuana. There are a se- ries of Justice Department guidance documents that enable the industry to exist. FinCEN has issued guid- ance for banks to provide services to the marijuana industry while abiding their obligations under the Bank Secrecy Act. And recent fed- eral appropriations bills (set to expire December 22nd) have barred the Department of Justice from utilizing ap- propriated funds to interfere with states implementing their own medical marijuana laws. It will be important to keep abreast of the federal guidance and Congressional appropriations. A comprehensive bill pres- ently is pending (S3195 - Scu- tari) to legalize recreational marijuana in New Jersey. Although a host of issues will require resolution before such a bill is passed, or imple- mented via corresponding regulation, there are prepara- tory measures that should be examined for those contem- plating entry into the field. n * Copyright 2017, All rights reserved. Mr. Fersko is a partner at Greenbaum, Rowe, Smith & Davis, LLP where he Co-Chairs the Real Estate Department; Ms. Gambale is an associate in the firm’s Tax, Trusts & Es- tates Department; Mr. Kay is an associate in the firm’s Real Estate Department. This article should not be used as, nor is it intended to give, legal advice. Any opin- ions set forth in this article are of the authors only and not of the firm.

BC Ch i na where it re- portedly was used to treat multiple ail- ments . Its use as a rec- ommended t r e a tmen t for certain

Jack Fersko

ailments can be found in U.S. medical journals by the late 1700s. The landscape changed, however, and mari- juana ultimately became,

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