The ever-expanding medical marijuana business in the United States has created a lot of legal headaches in different industries -- and that includes the real estate industry.
Given how potentially profitable commercial real estate involved in the cultivation of marijuana can be, it isn't necessarily something you want to totally avoid. But that doesn't mean you don't also need to be cautious.
Here are some things you should consider:
1. Marijuana is only legal at the state level
Even medical marijuana, which has enjoyed increasing support throughout the nation in recent years, has remained illegal under federal law. In theory, the federal government is leaving marijuana businesses with a state's blessing alone -- but that could change at any moment. Each new administration is prone to undoing things put in place by the last one. That means whether you buy, sell or plan to manage commercial properties, the only true way to avoid the risks associated with breaking the law is to not be involved.
In other words, if you're risk-adverse, simply don't do it. Wait until federal and state laws reconcile.
2. Not all local governments follow the state's lead
Even in a state that has give medical or recreational marijuana a green light, local laws may differ. Counties and cities sometimes enact their own rules, particularly in regards to cultivation.
Before you invest, check it out.
3. Marijuana cultivation is hard on property
It isn't easy to cultivate a good crop of marijuana. It takes a lot of water and warmth -- which is also a perfect recipe for mold. Chemicals used to treat a crop can also leave residue behind, and the plants themselves give off an odor and a resin that's unmistakable and hard to scrub away.
If you don't want to risk claims that the building is uninhabitable, you may have to tear it down and rebuild before you sell it again.
4. Your insurance might not cover any claims
Many policies don't cover anything related to marijuana cultivation simply because it's still illegal on a federal level. In other words, they certainly don't have to -- and they won't.
You need to look for coverage that works for you or make sure that you know what risks you're taking financially before you bite.
Ultimately, you have to decide if the risks are worth the investment. For some people, it will be -- while others are going to keep going the other direction for the time being.
Source: www.cresinsurance.com, "How to Represent Properties with Marijuana Cultivation," accessed May 25, 2018