Legal Services + Risk Management Risks of Marijuana-Related Businesses By Aaron S. Evenchik and John Paul Lucci Hahn Loeser O wners of land and industrial, commercial and retail properties in Ohio are struggling with best practices in contracting with, leasing to, or doing business with marijuana-related businesses. Attorney General Jeff Sessions’ recent memorandum providing federal prosecutors the discretion to enforce existing laws and prosecute marijuana-related crimes, even in those states that authorize marijuana-related commerce, only increases risk. The State of Ohio has and will issue permits for mari-juana growers and distributors. While authorized by the state, these businesses still violate the Federal Controlled Substances Act, which generally prohibits the cultivation, distribution and possession of marijuana. Further, these activities may serve as the basis for the prosecution of other crimes, such as those prohibited by the money laundering statutes, Aaron S. Evenchik John Paul Lucci the unlicensed money transmit-developed in industrial facilities and ter statutes and the Bank Secrecy Act. Imagine the personal injury claims shopping centers across Ohio. Property arising from a marijuana-related accident owners must evaluate the risks of rent-or death? The plaintiff’s lawyer will file ing space to businesses in the marijuana suit against everyone involved in the industry. In spaces with multiple ten-manufacture and distribution of mari-ants, will a lease to a marijuana business juana – now easily identifiable since these violate compliance with law represen-activities are now outside of the black market. Finally, an aggressive federal prosecutor may seek criminal penalties or jail time. Adding to these challenges, many banks are unwilling to service mari-juana businesses, forcing business to operate with cash and incur the expense of protecting large quantities of cash. National title companies are also refusing to issue title insurance when the purchaser is in a marijuana business. Even though title insurance covers past title risk and has nothing to tations made by the tenant and the do with future use of the property, title landlord? Will adjacent tenants object insurance companies want to avoid these (or do they have the right to object) to a marijuana facility in the same center? customers and risk. If there are common area changes, is it unfair to pass the elevated security Risks to property owners Despite these risks, marijuana facilities cost requirements along to other ten-for cultivation and retail sales are being ants? Can the landlord obtain complete indemnification from a high-risk marijuana-related tenant? Risks to contractors & subcontractors Those contracting for new con-struction or interior build-out for a marijuana-related business must be cautious. In addition to the crimi-nal prosecution risks, construction raises the risk of non-payment. In standard projects, contractors and subcontractors can confirm bank financing is in place and have lien and litigation rights. Conversely, in marijuana projects there is often no bank – simply a group of investors with a “pot” of cash that is difficult to secure. To the extent there is a project payment default, it may be more difficult to work through the foreclosure process or find a buyer for the property given the potential federal criminal violations. Contractors performing work for the marijuana industry are forming stand-alone construction companies, solely devoted to marijuana, to iso-late their operations and contain risk. Those doing so should main-tain corporate formalities to keep the marijuana business separate from the main operating entity. While the purpose of this structure is to limit potential exposure if there is a claim against the entity conducting business with the marijuana industry, there is no guarantee that these steps will fully protect the contractor against zealous federal prosecution. The goal is to segregate assets and operations in order to mitigate the contractor’s risk and overall exposure. Even lower-tier www.propertiesmag.com 59 The State of Ohio has and will issue permits for marijuana growers and distributors. While authorized by the state, these businesses still violate the Federal Controlled Substances Act, which generally prohibits the cultivation, distribution and possession of marijuana.