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The city of St. Paul is considering a relaxed approach to its cannabis zoning. The City Council heard testimony and discussion Wednesday about a proposal that would let businesses set up shop on sites that are over 300 feet from a school, compared to the state-allowed maximum of 1,000 feet.
Despite the permissive nature of St. Paul’s potential ordinance, it isn’t a green light for landlords hoping to lease up empty space as there are things beyond zoning codes that landlords need to consider before leasing to a dispensary or manufacturer.
According to Mitchel Chargo, a law partner at Hinshaw and Culbertson who focuses on commercial real estate and legalized cannabis, landlords should first consider what their bank loan contracts say about leasing to cannabis businesses. Some landlords may find that their bank doesn’t permit them to lease to such a tenant.
“Throughout the loan agreement, it says that the landlord will not violate any federal law,” Chargo said. “Well just by leasing to the cannabis operator, you’re violating the Controlled Substance Act. They have to look at those loan agreements and make sure that they’re not going to be out of compliance with them because then you’re in default and now you’ve got a problem with your lender.”
Other tenants can be a barrier to leasing to cannabis operations, Chargo said. For a shopping center, a landlord might have a tenant with an expressly written a lease for “no cannabis operations.” Essentially, landlords need to make sure they won’t default another tenant’s lease by signing a cannabis business nearby.
If a landlord determines their loans and other leases allow a cannabis business, the next step is being prepared for the other costs and time that comes with being a landlord for such an operation.
Berekk Blackwell is the chief operating officer for Zoned Properties, an Arizona-based real estate services firm that serves the cannabis industry. Blackwell said landlords in states that legalized cannabis typically have the idea of the “green rush.”
“Property owners expect operators, because they’re in this industry, to be flushed with cash or well-capitalized,” Blackwell said in an August interview. “But it’s really the opposite.”
Blackwell said operators typically are challenged when it comes to raising capital, making the journey to opening an operation a difficult and arduous one for landlords.
Being a landlord to operators requires a sensitivity to things like insurance cost. Blackwell said the fact that cannabis is federally regulated eliminates some companies from insuring a property with a cannabis retailer or manufacturer as a tenant. Chargo said there is a narrow field of carriers who insure sites with cannabis operations and those who do typically drive up premiums.
Chargo said these costs can reasonably be passed on to the operator, but he tells operators there should be a cap on how much they contribute to that extra cost.
Blackwell said landlords need to be prepared for the amount of time a space may sit empty before a cannabis operator can actually occupy it. This can come at a cost and might require a landlord to get involved with the process of procuring local permits.
When Zoned Properties looks to lease properties, Blackwell said, the lease is built and underwritten to keep costs low during the period between an operator procuring a state license and a local permit. His firm, he said, tries to be a willing partner for operators, which means becoming involved in the process when needed.
“So not just sitting on the sidelines and asking for updates but being willing to step up and join them in their city council meeting as their property owner/landlord,” Blackwell said.
Landlords should be prepared to give up some of the rights they might have normally enjoyed with other tenants, Chargo said, particularly the right to entry. Cannabis operators have particular procedures to be compliant with state regulation and something like a landlord or property manager waltzing into a property is not going to happen. More likely, a landlord will likely need to access the property the same way a customer or visitor might.
Chargo said sometimes landlords have a hard time grasping this concept because they own the building and the business is just renting it. But Chargo said it remains in the best interest of the landlord to have the operation in compliance. He has seen landlords compromise that in cases of emergency on the premises — a fire, a casualty — landlords are allowed to access the property.
“The reality is … the sooner that the landlord knows ahead of time that this is going to be a bit of a unique relationship, the better,” Chargo said.
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“}]] St. Paul officials are considering a proposal that would let businesses set up shop on sites closer than the state-allowed distance from schools. Read More