Marijuana holds risk for both lenders and landlords

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By Robert S. “Sam” Arthur

Rothgerber Johnson & Lyons

Regardless of your personal views on the issues of medical marijuana, it is clear that the growing and dispensing of MMJ has impacted the real estate market in Denver and the Front Range. As the retail and warehouse real estate markets became more depressed over the last few years, dispensers and growers of MMJ have been one of the few areas where demand has increased. Both landlords and lenders have had to address the respective issues of leasing to, or accepting deposits from and lending money to, those in the MMJ business. Banking or leasing to a customer whose operation remains illegal carries with it under federal law a unique series of risks that must be addressed.

How did we get here?

Prior to 2000, a few individual cities in Colorado, including Denver, had approved the use of MMJ under certain circumstances. Since the distribution of marijuana, for any reason, had remained illegal under both federal and Colorado law, the isolated referenda passed by individual towns and cities did little, if anything, to change the legal landscape.

That all changed in 2000. In November of that year, Colorado voters passed Amendment 20, authorizing the medical use of marijuana “for persons suffering from debilitating medical conditions.” This amendment gave certain protections from state criminal liability for patients, and primary caregivers, who qualified under the rules. The Colorado amendment had no impact, however, upon the existence and enforceability of numerous federal laws, which continued to make the growing and distribution of marijuana a crime. During the Bush administration, the Department of Justice continued to enforce federal marijuana laws, notwithstanding the passage of Amendment 20. As a result, those growers and dispensers, who attempted to take advantage of the provisions of Amendment 20, were still at serious risk over the violation of a number of federal laws on the books.

Over the last two years, two events have altered the enforcement scheme for MMJ growing and dispensing in our state.

Colorado attempted to better define the production and dispensing of MMJ by passage of the Colorado Medical Marijuana Code (HB 1284) in 2010. This law put into place a comprehensive scheme of registration, licensing, regulation, supervision, and enforcement for dispensaries and growing facilities.

Second, HB 1284 allows a municipality to prohibit the sale of MMJ within its jurisdiction by either vote or ordinance. Since the passage of HB 1284, a number of cities have passed ordinances or held referenda to either regulate or prohibit the sale of medical marijuana within their city limits.

Risks to lenders and landlords

Very few banks in Colorado will accept deposits from MMJ growers or dispensaries.

In an informal survey, 50 banks in Colorado were asked if they would accept deposits from MMJ related businesses. Of that group, only two responded in the affirmative. Also, our experience has been that no lenders, whether they are banks or insurance companies, will knowingly loan money to MMJ businesses or to landlords where marijuana dispensaries or growing facilities are leased.

Why this hesitancy? Undoubtedly, banks and other lenders have a concern about lending money to, or accepting deposits from, any business engaged in an illegal activity under federal law.

However, since most lenders undertake some due diligence upon the uses of their collateral, it is not easy for a lender to meet this burden in most circumstances. This defense is better raised in the circumstance where, after the loan was made, the landlord/business subsequently leased the property to the dispensary.

In a seizure situation, a lender sometimes can reach an agreement with the government in order to stipulate to the lender’s innocence in exchange for allowing the government to seize and sell the forfeited property. After the government sells the seized property, the lender then is able to foreclose upon its deed of trust and to obtain its principal and interest. All in all, typically there is a significant amount of delay and the lender’s rights in its collateral are thereby compromised.

The risks to landlords are even more significant. Leasing to an MMJ dispenser or grower carries all of the risks described above; however, it is very rare for a landlord, who knowingly leases to a grower/ dispenser, to qualify for the “innocent owner” defense. As such, landlords who do decide to lease to growers/dispensers do so at tremendous risk.

In summary, the operation of an MMJ growing or dispensing business still carries with it some risk. Most lenders attempt to avoid risk and will avoid accepting deposits from growers/dispensers, and will avoid making loans secured by collateral that is utilized in the growing or dispensing of MMJ. These risks also extend to landlords who face the potential termination of their leases to growers/dispensers through no fault of their tenants.

Robert S. “Sam” Arthur Jr. is a partner in Rothgerber Johnson and Lyons Denver office. He can be reached at