Weekly Brief – January 18, 2021

This week I want to focus the discussion on cannabis-related property. This has been one of the more interesting market segments the past few years, as the laws and regulations surrounding the use have evolved quickly.

The use of a property for a cannabis-related purpose is subject to significant obstacles. First, the property must be permitted for cannabis use under local zoning. Second, the property must be appropriately licensed under Michigan law. A property may be licensed for the sale of only medical marijuana, or for recreational marijuana. There are also licensing issues for individuals who own or work for the businesses operating at the cannabis business.

In order to complete the purchase or sale of a cannabis-related property, there are also private-market concerns. Most financial institutions will not loan against a cannabis-related property. This remains true notwithstanding the fact that marijuana is “legal” under state law. Marijuana remains illegal under federal law. Many financial institutions are concerned that lending on cannabis-related properties might run afoul of federal banking regulators.  There are, however, some financial institutions that are dipping toes into the water on this issue.

Another private-market concern is that there is currently only one national title insurance underwriter (Westcor Land Title Insurance Company) that will issue title insurance on cannabis-related uses. As most lenders will require a loan policy of title insurance, this poses another limitation on these transactions. (Shameless plug: Midwest Title issues title insurance for, among others, Westcor).

The federal regulatory and legal issues may change under the Biden Administration. Actually, the biggest chance for federal changes arose from the results of the Georgia Senate runoffs. Because those elections resulted in a shift of control from the Republicans to the Democrats in the Senate, there will be a change in the Chairperson of the Senate Banking, Housing, and Urban Affairs Committee. The current GOP Chairperson, Sen. Mike Crapo of Idaho, has been firmly opposed to the SAFE Banking Act, which would allow federally-chartered financial institutions to handle cannabis-related funds. With a change in control of the Senate, Sen. Crapo will no longer be Chairperson, and there appears to be a greater likelihood of passage of the SAFE Banking Act.

If cannabis-related uses are fully authorized at the state and federal level, there could be a flood of new cannabis-related market participants. We are already starting to see the “professionalization” of cannabis businesses, as national companies move into the segment. However, the zoning and state licensing requirements will still limit the available properties for cannabis use. This may have the impact of driving prices up for cannabis-related property further, as the demand may increase.