Federal law fogs pot's promise for real estate, Oklahoma panel says

Richard Mize Oklahoman on August 22, 2018

Medical marijuana comes with federal strings attached that entangle most aspects of commercial real estate, from buying, selling and leasing, to finance and insurance.

So cautioned a panel of experts Tuesday at the 2018 Affordable Housing Conference presented by the Oklahoma Coalition of Affordable Housing.

More than housing is caught up in federal fog surrounding state legalization — retail and industrial property are, too.

Attorney Chris Cotner said just one thing is clear:

"From a business perspective, what everybody needs to understand is that the possession, consumption, use, or sale of cannabis is illegal at the federal level, OK? That's it. That's what you need to know," said Cotner, with The Bethany Law Center LLP.

"I can maybe give you advice on how to follow Oklahoma law. But the consumption, use or sale of cannabis at the federal level is illegal, and there are certain consequences."

Lack of access to banking, lest bankers violate federal regulations, has been noted. Inability to deduct business expenses not so much. Cotner said that will have otherwise law-abiding Oklahomans paying effective tax rates of 60 to 70 percent.

"But the main thing is you've got Oklahoma businesses and taxpayers, who, if a U.S. attorney here in either the Western, Eastern or Northern District decides to make a name for himself, could be prosecuted tomorrow, and there's not anything we can do about it. There's no way to protect them," he said.

Then there's insurance.

"You cannot get title insurance if you have a building that has this (marijuana business) activity going on in it," said David Chapman, a professor of real estate at the University of Central Oklahoma and a property investor and manager.

Title companies don't want to underwrite property, which guarantees ownership rights, that could be jeopardized by federal law enforcement, said attorney Chris Griswold.

Chapman said he prohibits smoking and vaping of anything on property he leases or manages. Cotner said he has cover doing so even if marijuana is legally prescribed — because federal law trumps state law. Chapman was less sure about edible marijuana.

Property and casualty carriers likewise are reluctant to insure, not only because of federal law but out of safety concerns, Chapman said. Fires, explosions and contamination from accidents during processing marijuana have spiked everywhere pot is legal, he said.

"They're really looking at these policies now to see who the tenants are," he said.

Chapman hit the high points of concerns by property sector.

• Complaints about smoke will increase in apartments, and lease violators growing pot indoors will be betrayed by spiking electric and water bills.

• Retail property markets are already being disrupted by demand for dispensaries driving up lease rates and property values.

• Marijuana businesses are snatching up old warehouses — with ceiling heights too low and loading docks not configured for most industrial demand — at two and three times market rates.