In Washington State, it is not uncommon for marijuana licensees to own real property and act as landlords to other marijuana licensees. This can be problematic, however, if a retail marijuana licensee leases to a producer and/or processor licensee and vice versa.
Vertical integration of marijuana businesses is prohibited in Washington. According to state law, “[n]either a licensed marijuana producer nor a licensed marijuana processor shall have a direct or indirect financial interest in a licensed marijuana retailer.” RCW 69.50.328.
Although this state law explicitly states that producers and processors can’t have any interest in a retail license, the Washington State Liquor and Cannabis Board (“LCB”) has interpreted this to also mean that a retailer cannot have an ownership or financial interest in a producer or a processor licensee.
So, how do landlords fit into this? The LCB considers landlords to have an indirect and/or direct financial interest in their tenants. Generally, landlords only have a contractual right to receive payment from their tenants under a standard commercial lease agreement. Thus, it is not entirely clear to me how this right to receive rent results in a financial interest in the tenant’s business. Nonetheless, this is the LCB’s position and marijuana producer and/or processor licensees who lease to licensed marijuana retailers, and licensed marijuana retailers who lease to licensed marijuana producers and/or processors may find themselves running afoul of LCB requirements.
Licensed producers and/or processors can still likely lease to other licensed producers and/or processors; and licensed retailers can still likely lease to other licensed retailers. The landlord-tenant relationship, however, should be an arms-length one and the lease agreement should address LCB requirements such as access restrictions, disposal of marijuana in the event of abandonment, security, signage, etc. All leases for marijuana licensees are subject to LCB review and should be carefully crafted to comply with Washington State marijuana law. For more on lease agreements, see my prior post on this topic.
For more information on the regulation of marijuana businesses, please contact Heather Wolf.