Landlords and Medical Marijuana in California

September 8, 2017

In 1996, California voters decriminalized the medical use of marijuana by approving the California Compassionate Use Act. In 2015, the voters approved the Medical Cannabis Regulation and Safety Act ("MCRSA"), to regulate the medical marijuana industry. In 2016, California voters approved the Adult Use of Marijuana Act ("AUMA"), allowing (1) individual adults to possess, use, purchase, transport, or give away up to 28.5 grams of marijuana or 8 grams of concentrated marijuana; (2) them to grow up to 6 plants and possess the marijuana produced by the plants; and, (3) legally possess marijuana accessories.

Despite California's legalization of medical and recreational marijuana, the use, manufacture, possession, and distribution of marijuana remains illegal under federal law as an illegal substance. In 2013, Congress enacted the Rohrabacher-Farr Amendment barring the Justice Department from using federal funds to prosecute violations of marijuana related federal laws in 34 States and the District of Columbia and prohibit the States from implementing their own laws authorizing the use, distribution, possession, or cultivation of medical marijuana. This amendment only applied to medical marijuana and not recreational marijuana. Recently, in May 2017, the President signed a new spending bill which included a new version of the Amendment now applicable to 44 states, the District of Columbia, and territories of Guam and Puerto Rico. This Amendment also does not protect recreational marijuana. Attorney General Sessions recently asked Congress to undo the federal medical marijuana protections claiming the amendment inhibits his department's authority to enforce the Controlled Substances Act saying marijuana was "only slightly less awful" than heroin.

Given the legalization of marijuana in California, where does that leave landlord-tenant law? First, we can expect to see factories, warehouses, self storage facilities and commercial store fronts set up for cultivation, processing and sale of marijuana, marijuana plants, and related products. According to Forbes Magazine, there has been a scramble in the real estate industry to purchase commercial warehouses and other properties that would be desirable for marijuana cultivation, processing and distribution. Second, landlords are charging premium rents for new tenants in the marijuana industry. Since marijuana cultivators and distributors are currently unable to have bank accounts because of the federal illegality of marijuana, they do not have credit and their dealings are mainly in cash causing most tenants to agree to pay above-market rents.

Currently, there are no reported California cases ruling on the legality of whether a landlord can declare a lease terminated and evict a tenant based upon the property being used in a manner that is illegal under federal law, but decriminalized in California.

The California Medical Cannabis Regulation and Safety Act (MCRSA) provides that acts of a person are not unlawful under California law when the person, including a landlord, in good faith allows his or her property to be used by a medical marijuana licensee, its employees and agents, as permitted under both State and local licenses or permits, and in compliance with applicable local ordinances. Such activity will not subject a person to arrest, prosecution, a civil fine, other sanctions, or form the basis for seizure or forfeiture of assets.

However, despite California law affording a landlord a reasonable basis to evict a tenant for not complying with State or local laws regulating the cultivation, use or dispensing of medical marijuana, the law does not prevent prosecution, seizure, or forfeiture actions against a landlord under federal law. A landlord who knowingly rents property to a user, possessor, or cultivator of medical marijuana still risks criminal prosecution under federal law for aiding and abetting and civil forfeiture of his or her real property.

The ultimate issue for a landlord is marijuana's federal legal status and the government’s approach. While the Obama administration left states alone, there is no assurance the current administration will be hands-off. Stricter enforcement of the federal laws by the federal government would jeopardize the legality of marijuana laws in California and, in turn, the risks to landlords choosing to rent to marijuana related businesses.