M id A tlantic Real Estate Journal — Owners, Developers & Managers — March 2023 — 3C
www.marej.com
O wners , D evelopers & M anagers
By Jack Fersko, Greenbaum, Rowe, Smith & Davis LLP The challenge of leasing to a cannabis facility
A s of this writing, 41 states and the Dis - trict of Columbia and
in every commercial and in - dustrial real estate transac - tion. To begin, there is limited availability of title insurance. In addition, there are unique challenges when it comes to traditional insurance, as sourc - es for insurance are limited, policies are usually written by surplus lines carriers, cover - age is expensive, and careful consideration is needed to ensure the policy will cover a loss. Evaluation also must be given to additional forms of coverage, including insurance for bud tenders, crop loss and situations where a tenant uses
an armed guard. A landlord must first evalu - ate whether to engage in such a transaction and must evalu - ate what will be involved: lender considerations; tenant’s licensing status at the state and municipal levels, local land use requirements, ten - ant’s financial wherewithal and operational experience, property neighbors, and land - lord’s willingness to open its fi - nancial history to New Jersey’s regulatory commission. In addition, among a host of issues, landlords and tenants need to evaluate: (a) lease
commencement (including time for a tenant to secure state and local licenses, inter - im payment obligations, ter - mination rights and potential litigation); (b) use of cash; (c) scope of a tenant’s permitted use (including the particular operational license, impacts of a multi-tenanted facility, odors, and energy require - ments); (d) what constitutes a default vs. a right of termi - nation (including receipt of a license, loss of a license, federal enforcement action, failure to pay local taxes, and third party suits); (e) the proper structure
for a compliance with law provi - sion in light of the federal illegal - ity of cannabis, and potential ISRA triggers; and (f) mainte - nance, repair, replacement and restoration obligations. While the cannabis industry offers exciting business op - portunities, it must be entered with a keen understanding of the issues and practical solu - tions in order to move a trans - action forward. Jack Fersko serves as Chair of the Cannabis In- dustry Practice Group at Greenbaum, Rowe, Smith & Davis LLP. MAREJ
Puerto Rico have legal - ized the sale of marijuana for medical purposes and 21 states and the District of Columbia have legal -
Jack Fersko
continued from page 2C • Leveraging technology to gather maintenance data for each multifamily unit Summary There’s more to investing in multifamily real estate than acquisitions and dispositions. Similar to the art of making a great sandwich, a lot of work goes into increasing the value of a property asset. Experienced owner-operators understand this and have processes in place to ensure properties are well maintained, positioned cor - rectly in the market, and man - aged by a top-tier team. MAREJ The art of making a great sandwich. . . ized the sale of marijuana for adult (recreational) use. Can - nabis sales topped $25 billion in 2021 and are expected to grow to a $90 billion industry by 2026. A significant factor is the revenue generated by these sales for state and local governments. Here in New Jersey, with only 12 distribution facilities operating during that time pe - riod, $200 million in cannabis sales were generated from April 21, 2022 through July 31, 2022. During the third quarter of 2022 alone, adult use cannabis sales generated $7.7 million in tax revenue. Although the marijuana busi - ness is illegal under federal law, businesses in this industry sector must still pay federal income taxes. While businesses usually are entitled to claim certain deductions, such deduc - tions for a marijuana business are constrained by §280E of the IRC, which prohibits all business deductions, even those that are not per se illegal such as rent, telephone and salaries. Although marijuana-related businesses have been legal for some time now, the field remains in its infancy. Still, a number of important issues have already been identified that will need to be addressed
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