Medical Marijuana Real Estate Transactions: Title Insurance and Closing Issues

medical marijuana title problemThe conflict between state and federal law brings uncertainty about potential liability for involvement in transactions related to the medical marijuana industry – including the purchase and sale of real estate. In particular, title companies are concerned that by insuring the purchase of property to be used in the medical marijuana industry they may be found guilty of aiding and abetting a criminal operation.

In fact, some title companies will no longer act as an escrow or closing agent in these transactions because of the nebulous that exists. Meanwhile, other companies are requiring parties to sign affidavits to assure the property will not be used for marijuana-related activities.

The Medical Marihuana Facilities Licensing Act (“MMFLA”) addresses real property used in medical marijuana operations in a limited capacity. It provides that a person who owns or leases property where a marijuana facility is located, and who is unaware that the licensee has violated the MMFLA, cannot be prosecuted and the property may not be seized. But the federal Controlled Substances Act says something completely different. Federal law provides that, when a person is found to be growing, processing, or selling marijuana, the offender’s personal and real property may be seized. These discrepancies between Michigan and federal law significantly complicate marijuana real estate transactions for title companies and lenders.

During the past several years, many title companies have announced strict rules regarding the purchase and sale of real property that is intended for use in the medical marijuana industry. For those title companies that are still willing to get involved in these real estate transactions, limiting their potential liability is of the utmost importance. Some are including an exception in their policies that excludes coverage for governmental actions, including the forfeiture of real property. Under many of these policy exceptions, the failure of the purchaser to disclose the intended use of the property can result in the title company denying liability on a claim relating to property forfeiture because of the marijuana activity on the property.

In addition to the hesitancy of title companies to get involved in medical marijuana real estate deals, financial institutions are reluctant or unwilling to lend to marijuana businesses. Financial institutions in some states, even where marijuana is legal, have also banned doing business with any company that is actively or remotely associated with marijuana. Certain credit card companies have even prohibited the use of their cards for marijuana-related transactions.

The discrepancies between Michigan and federal law and the reluctance of lenders and insurers to participate in real estate transactions involving medical marijuana businesses pose significant challenges for those involved in the industry. These discrepancies make marijuana real estate transactions tricky, which is why an attorney should be consulted before entering into any agreement to purchase or sell real property or lease commercial space. Most financial institutions require real estate transactions to be closed by a title company and the reluctance of title companies to get involved in these transactions makes it difficult for those who want to buy and sell property for use in the medical marijuana industry to find a location in which to operate. However, as long as the transaction does not involve a bank loan – and most do not – a lawyer can step in and serve as the closing agent.

Please contact us if you or your business needs assistance with buying, selling, or leasing real estate for medical marijuana use.

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