In Part 1, we looked at how to choose a location, the due diligence a cannabis tenant should complete before signing, and the standard lease provisions that do not work for a regulated cannabis business. This second installment turns to the protections operators should affirmatively negotiate into the lease, and the broader federal-law issues that continue to shape cannabis real estate in Minnesota.
A cannabis lease is different from a traditional commercial lease, and operators need agreements that recognize the unique regulatory environment in which cannabis businesses operate. A poorly negotiated lease can create unnecessary obstacles for a cannabis company trying to launch and grow. Important lease issues include:
- Protecting the Cannabis Use. The lease should clearly authorize the intended cannabis activity, whether retail sales, cultivation, processing, manufacturing, or another licensed use.
- Licensing Contingencies. Since a cannabis business cannot operate without regulatory approval, operators should consider lease provisions addressing what happens if licensing is delayed, denied, or conditioned.
- Landlord Financing and Lender Issues. The lease should address whether landlord financing creates restrictions on cannabis use, whether lender approval is required, what protections exist if the landlord’s lender objects, or protects the tenant’s lease from future loans that may prohibit the tenant’s use.
- Tenant Protections. Cannabis business owners should carefully negotiate provisions involving Landlord approval rights, assignment and ownership changes (tip: for operators seeking to bring on investors in the future, it is worth paying attention to assignment prohibitions in the lease, as many standard forms prohibit the tenant from taking on large investors without a landlord’s approval), tenant improvements and build-outs, compliance obligations, default provisions, termination rights, and protection of tenant investments.
Although Minnesota has legalized adult-use cannabis, federal law continues to create uncertainty for cannabis businesses and their real estate relationships. This affects many parts of the cannabis industry, including property leasing, banking, financing, insurance, and title coverage. For operators, understanding these risks is important when negotiating with landlords, investors, lenders, and service providers. A knowledgeable cannabis attorney can help structure transactions that account for these challenges while allowing the business to move forward.
This article is for general informational purposes only and does not constitute legal advice. Cannabis laws and regulations are evolving. Consult an attorney regarding your specific business or real estate matter.
