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Medical Marijuana Issues for REALTORS® | Buyers, Sellers, Landlords and Tenants Guide to State and Federal Medical Marijuana Laws

I. Introduction

On November 5, 1996, California voters passed Proposition 215--the Compassionate Use Act of 1996--concerning the medical use of marijuana in California. Senate Bill 420, the Medical Marijuana Program Act, further expanded and clarified the law effective January 1, 2004. The two laws address the possession, use, cultivation and distribution of marijuana for medical purposes. Subsequent case law and the California Attorney General’s Guidelines for the Security and Non-Diversion of Marijuana Grown For Medical Use (Aug. 2008) (hereinafter Attorney General Guidelines) have given further guidance as to the implementation of the law. Nonetheless, marijuana, regardless of the use, remains illegal under federal law. California’s medical marijuana
laws and the conflict they create with federal law create a number of issues for REALTORS® in the areas of landlord-tenant law--both commercial and residential--and the sale of property where marijuana has been or is currently being grown. This Legal Q&A reviews the medical marijuana law and focuses on areas of particular concern to REALTORS®.

II. California's Medical Marijuana Laws

Q 1. What are the main purposes of the Compassionate Use Act of 1996?

A The main purposes of the law are to “ensure that seriously ill Californians have the right to obtain and use marijuana for medical purposes where that medical use is deemed appropriate and has been recommended by a physician who has determined that the person’s heath would benefit from the use of marijuana” for an illness “for which marijuana provides relief” and to “ensure that patients and their primary caregivers who obtain and use medical marijuana for medical purposes upon the recommendation of a physician are not subject to criminal prosecution or sanction.” (Cal. Health & Safety Code § 11362.5.)

Q 2. What is a qualified patient?

A A qualified patient is a person for whom a physician has recommended the use of marijuana to treat an illness for which marijuana provides relief (Cal. Health & Safety Code § 11362.5).

Q 3. What does the law mean by primary caregiver?

A A primary caregiver is an individual designated by a qualified patient (see Question 2) who has “consistently assumed responsibility for the housing, health or safety ”of the qualified patient (Cal. Health & Safety Code § 11362.5). A primary caregiver under the law cannot simply be someone who provides medical marijuana or assists the qualified patient with marijuana. In order to be considered a primary caregiver the person must, in addition to having being designated by the patient, “(1) [have]consistently provided caregiving, (2) independent of any assistance in taking medical marijuana, (3) at or before the time he or she assumed responsibility for assisting with medical marijuana.” (People v. Mentch, 45 Cal. 4th, 274, 282 (2008).)

Q 4. How does the law protect persons involved with medical marijuana from criminal prosecution?

A Under the Compassionate Care Act and SB420, California laws which provide for criminal penalties (see Cal. Health and Safety Code §§ 11357, 11358, 11359, 11360, 11366, 11366.5, and 11570) for the possession, use, distribution, transportation, processing, administering, delivering or giving away marijuana, do not apply to persons such as a qualified patient, a person with a state-issued medical marijuana identification card, or a primary caregiver who act in accordance with the requirements of the Compassionate Care Act and SB420. (Cal. Health & Safety Code § 11362.765.)

Q 5. Can a physician lawfully recommend marijuana to a patient?

A California law states that “no physician in this state shall be punished, or denied any right or privilege, for having recommended marijuana to a patient for medical purposes” (Cal. Health & Safety Code § 11362.5). However, physicians cannot prescribe marijuana due to federal law which recognizes no medical use for marijuana. That federal prohibition on doctors prescribing marijuana is why California doctors recommend marijuana as opposed to prescribing it.

Q 6. What is a State of California medical marijuana card?

A Qualified patients and primary caregivers can apply for a card issued by a county department of health or an entity designated by the county to issue the cards (sometimes referred to as a “215 card”) identifying the holder as a qualified patient or a primary caregiver and, therefore, entitled to use, possess, cultivate or transport marijuana for medical purposes. (Cal. Health & Safety Code § 11362.71.)

Q 7. What protection does having a state medical marijuana identification card give the holder?

A A person who holds and properly utilizes a state medical marijuana identification card ensures that he or she will not have a problem with law enforcement. The law states that no “person or designated primary caregiver in possession of a valid state medical marijuana identification card shall be subject to arrest for the possession, transportation, delivery or cultivation of medical marijuana” (Cal. Health & Safety Code § 11362.71). Law enforcement personnel are also obligated to accept the identification card unless an officer “has reasonable cause to believe that the information contained the card is false or fraudulent, or the card is being used fraudulently” (Cal. Health & Safety Code § 11362.78).

Q 8. What information does a state medical marijuana identification card contain?

A Each medical marijuana card should include the following:

a unique identification number assigned to the holder of the card,

an expiration date,

the name of the county health department or other approved issuer of the card,

a twenty four hour toll-free number so that law enforcement can call to verify the information on the card, and

a photo identification of the holder.
(Cal. Health & Safety Code § 11362.735.)

Q 9. Does a person need to have a state medical marijuana card to fall within the protections of the state medical marijuana laws?

A No. The medical marijuana identification card is optional. (Cal. Health & Safety Code § 11362.71.)

Q 10. What are the risks of not having a state medical marijuana card?

A If a person does not have a state issued medical marijuana card and is investigated by law enforcement for his or her use, transportation, cultivation, etc. of medical marijuana, he or she must rely on the evaluation and judgment of the law enforcement officer regarding the medical marijuana. The law enforcement officer may choose to accept the person’s representations or presentation of a local ID card or a physician’s recommendation without a card, but effectively there is more risk to the person of being arrested and then having to defend against being charged with a criminal offence.

Q 11. How much marijuana can a qualified patient and primary caregiver possess?

A In People v. Kelly, the California Supreme Court ruled that pursuant to the language in Compassionate Use Act a qualified patient can possess in terms of quantity of dried marijuana and mature or immature plants, “an amount of marijuana reasonably related to meet his or her current medical needs.” (People v. Kelly, 47 Cal. 4th 1008, 1049 (2010).)

Q 12. How much marijuana can a person with a state medical marijuana identification card possess?

A A person with a state-issued medical marijuana card may possess 8 ounces of dried marijuana and may maintain no more than 6 mature or 12 immature plants per qualified patient. The law provides that a person with a card may have more than the amount stated above if the holder of the card has a doctor’s recommendation that the qualified patient requires more marijuana than the amount stated above. Also, cities and counties may adopt ordinances permitting qualified patients to possess more--but not less--than what the Attorney General Guidelines allow. (Cal. Health & Safety Code § 11362.77.)

The law creates a “safe harbor” for the holder of a marijuana card. As long as the holder of the card complies with the requirements of the law, law enforcement officers should not take any action against the holder of the card in the absence of other indicia of illegal activity. (Cal. Health & Safety Code § 11362.71.)

Q 13. What if a qualified patient possesses more than the amounts permitted by the law in Question 12?

A Pursuant to People v. Kelly a person may lawfully possess as much marijuana as necessary for their medical needs regardless of the quantities specified in Question 12. (People v. Kelly, 47 Cal. 4th 1008, 1049 (2010).) However, if a person possesses more than the amounts discussed in Question 12 and, therefore, in excess of that allowed by the medical marijuana card, a law enforcement officer would need to make a determination as to whether or not the amount was appropriate. The law enforcement officer could make an arrest if he or she believed that the amount was excessive, but the qualified patient could assert a defense to any charges in court based on the argument he or she required the larger amount of marijuana.

Q 14. How many qualified patients can a primary caregiver assist with their marijuana needs?

A The law does not limit the number of patients assisted by a primary caregiver. A primary caregiver is allowed to cultivate or possess the total amount of marijuana that would be allowed for all the qualified patients to whom the primary caregiver provides assistance. (Attorney General Guidelines, p.10.)

Q 15. Can multiple qualified patients and primary caregivers grow marijuana together?

A Yes, medical marijuana patients and/or primary caregivers can associate together for the purposes of cooperatively or collectively cultivating and distributing marijuana. (Cal. Health & Safety Code § 11362.775.)

Q 16. If a group of qualified patients and/or primary caregivers choose to cultivate and/or distribute marijuana collectively how are they required to organize themselves?

A The law permits caregivers and patients to organize themselves as a not-for-profit cooperative or collective. (Cal. Health & Safety Code § 11362.775.)

A cooperative is a legally recognized form of business entity in California. In order to be a cooperative the business needs to file articles of incorporation with the state and be organized and registered as a cooperative either under the California Corporations Code or the California Food and Agriculture Code.

There is no formal definition under California law for collectives. The State Attorney General has stated that a collective “should be an organization that merely facilitates the collaborative efforts of patient and caregiver members--including the allocations of costs and revenues. As such a collective is not a statutory entity, but as a practical matter, it might have to organize as some form of business to carry out its activities.” (Attorney General Guidelines, p. 8.)

Q 17. Can a marijuana collective or cooperative operate as a profit-making business?

A No. While a nonprofit cooperative or collective may pay individuals for tasks for running and working for the cooperative, the entity itself cannot be run for profit. (Cal. Health & Safety Code § 11362.765.)

Q 18. Can a marijuana collective or cooperative sell marijuana to non-members?

A No. According to the Attorney General Guidelines, a cooperative or collective “should not purchase marijuana from, or sell to, non-members; instead it should only provide a means for facilitating or coordinating transactions between members.” (Attorney General Guidelines, p. 8.)

Q 19. Can a collective distribute its marijuana to primary caregivers or qualified patients through a storefront location?

A Current law does not prohibit a collective or cooperative from distributing marijuana to its members from a storefront location. Most cities in California have such facilities. However, any such dispensary must still meet all the requirements of being a lawful marijuana collective or cooperative and must distribute marijuana only to members of that collective or cooperative.

Q 20. What are the restrictions on the location of marijuana collectives or cooperatives?

A State law prohibits medical marijuana collectives or cooperatives from operating within 600 feet of a school, except for those cooperatives or collectives operating prior to the enacted law in 2004 (Cal. Health & Safety Code § 11362.768). Cities and counties also, generally, have restrictions and requirements for the operating of marijuana collectives and cooperatives. For example, the City of West Hollywood requires a uniformed security guard to be present at all dispensaries in its city.

Q 21. Are there a maximum number of plants that a cooperative or collective may grow for its members?

A No, however, cities may restrict the size of crops grown by a collective or cooperative within the city limits. For example, the city of San Francisco has a cap of 99 plants for any land being cultivated by marijuana cooperative or collective within its city limits (San Francisco Ordinance 275-05). However, the larger the size of the cooperative or collective and, therefore, the larger number of plants that are permitted, the more likely a cooperative or collective is to attract law enforcement attention to confirm that is operating as required by law and is a true collective or cooperative. Many collectives and cooperatives who wish to reduce the risk of possible federal criminal law penalties will grow fewer than 100 plants, as the 100-plant threshold triggers, under federal law, a minimum five-year prison sentence.

Q 22. Could a large scale operation be considered a primary caregiver and, therefore, circumvent some of these rules regarding organization as a cooperative or collective?

A This may be possible, but as a practical matter it is unlikely. The requirements to be a primary caregiver as described in Question 2 are strictly interpreted by the courts, and a large scale operation is unlikely to be able to meet those requirements. It is possible that a person at a hospice or a care facility who had responsibility for caring for a number of patients could end up having a number of patients for whom he or she would qualify as a primary caregiver and, therefore, would need to cultivate and possess a fairly large amount of marijuana for his or her patients, but this would not be a common situation.

III. Federal Marijuana Laws

Q 23. What is the status of medical marijuana under federal law?

A Marijuana possession, cultivation, processing, etc., are all illegal under federal law with no exceptions. It does not matter if the marijuana is being used for medicinal purposes. Penalties for violating federal drug laws can include jail time, fines and forfeiture of assets involved in the violation of the drug laws or gained by monies obtained from the violation of the drug laws. Marijuana of any kind is a schedule 1 drug under federal law which means that it is “classified as having a high potential for abuse, no currently accepted medical use in treatment in the United States, and a lack of accepted safety for use of the drug or other substance under medical supervision.” (Source: http://www.deadiversion.usdoj.gov/schedules/index.html#define)

Q 24. Will the federal government prosecute marijuana collectives, qualified patients or primary caregivers for violating federal law?

A As mentioned in Question 23, federal law makes the possession, distribution, etc., of medical marijuana illegal. The U.S. Justice Department in a memorandum dated Oct. 19, 2009 (See http://www.justice.gov/opa/documents/medical-marijuana.pdf ), stated that U.S. Attorneys in states that have medical marijuana laws should not focus prosecutorial resources on “individuals whose actions are in clear and unambiguous compliance with existing state laws providing for the medical use of marijuana.” What the current Justice Department is doing is exercising its prosecutorial discretion (its right to choose which cases to pursue and file) to only pursue more serious marijuana cases, and specifically those not in compliance with state marijuana laws.

As a result, under the current policy if an individual is in clear compliance with state medical marijuana laws, it is very unlikely there will be a federal prosecution. However, this is a policy decision not a change in law. The U.S. Justice Department could change this policy at any time.

Q 25. What are the penalties for the violation of the federal marijuana laws?

A Penalties for violations of federal marijuana laws vary and can include federal prison, fines and forfeiture of any property involved in the marijuana distribution, cultivation, etc. Many cooperatives and collectives are aware of the risks of being pursued for federal law violations and it is one reason why many collectives and cooperatives will not grow more than 99 plants, as possession of 100 plants triggers a five-year minimum mandatory sentence under federal law. Also as a general rule, penalties rise with the quantities of marijuana involved. (Source: http://www.justice.gov/dea/agency/penalties.htm)

IV. Issues for REALTORS®

A. Residentail Leasing

Q 26. May a landlord prohibit the use, cultivation, or possession of medical marijuana in a rental unit?

A Yes. Most leases, including the C.A.R. residential lease (C.A.R. form LR), prohibit the tenant from engaging in conduct that violates any law. Possessing, cultivating and using marijuana in any form remains a violation of federal law. The current U.S. Department of Justice government policy does not change the fact that marijuana remains illegal under federal law and that the policy could change at any time

Q 27. Could the federal government seize the landlord’s property based on a tenant’s cultivation and possession of marijuana?

A Yes, this is a possibility. If the tenant grows or possesses marijuana in violation of California’s medical marijuana laws or if the U.S. Department of Justice policy were to change, the federal government could initiate civil proceedings to force the landlord to forfeit the property to the government because the landlord is allowing the property to be used in violation of federal drug laws. While the landlord may have defenses to an action by the U.S. Department of Justice, it could be a costly and time-consuming battle for the landlord.

Q 28. What if a tenant claims that the use of medical marijuana is a necessary and reasonable accommodation for his or her disability and states the prohibition on its use, possession and cultivation violates his rights under California’s Fair Housing laws?

A While nothing, of course stops, a tenant from making a claim, that claim is unlikely to succeed. In the California Supreme Court case of Ross v. Ragingwire, an employee who was not using marijuana while at work and was a qualified patient under the law was fired after failing a drug test. The employee sued alleging, among other claims, wrongful termination based on California’s Fair Employment and Housing laws. The Court ruled against the employee stating that the Compassionate Use Act was enacted primarily to protect persons who need medical marijuana from any type of criminal prosecution and not as a broader protection in other contexts. (Ross v. Ragingwire, 42 Cal. 4th 920, 928-931 (2008)).

Furthermore, the tenant would in effect be asking the landlord to accommodate his disability by violating federal law. A violation which could result in the possible forfeiture of the property, if the federal government were to change its policy . With such considerable risks to the landlord, there is a good argument that allowing a tenant’s medical marijuana use or cultivation, therefore, would not be a reasonable accommodation, but an unreasonable request and the landlord does not have to allow it.

Of course, a landlord needs to decide whether the possible risks and costs of a tenant’s claim of discrimination based on a disability outweigh the risks of allowing the tenant to use marijuana while placing restrictions in the lease on its use, possession and cultivation to reduce the landlord’s risk and to ensure the tenant is in compliance with state law.

Q 29. What precautions should a residential landlord take if he or she decides to rent to someone who says that he or she is a medical marijuana patient and needs to use or cultivate marijuana in his or her rental unit?

A It is likely that the landlord could restrict the use or cultivation of marijuana completely, so if the landlord instead agrees the tenant can lawfully use marijuana on the premises, the landlord should, since he could bar the use completely, be able to put restrictions on the use.

The landlord should consider the following:

Only allow medical marijuana-related activity to tenants with a state medical marijuana ID card.
Allow the tenant to smoke marijuana only with the installation of fans or other devices at tenant expense, so that neighbors are not subjected to the smell and the smoke.
In units with a patio or yard, require that any plants not be observable by neighbors. For example, by putting up some type of fencing or other plants surrounding the marijuana plants, at tenant expense.
Limit the number of plants permitted to be grown.
Allow a tenant to possess or utilize marijuana on the premises in compliance with state law but disallow cultivation. For a landlord, monitoring that the tenant is not growing plants in excess of that allowed by state law could prove difficult and if the tenant violates state law limits, the landlord could find himself or herself ensnared in a federal criminal prosecution or an action for forfeiture.
Add a lease provision which would allow the landlord to give notice to the tenant to cease cultivation, use of, and possession of marijuana on the premises, if the U.S. Department of Justice changes its current policy.
Q 30. What if the landlord discovers the tenant is violating his or her lease by smoking, cultivating, or possessing marijuana on the rental property?

A The landlord could issue a non-curable three-day notice to quit since the basis for the eviction is illegal conduct, or a three-day notice to perform covenant or quit (C.A.R. Form PCQ), if the landlord wishes to give the tenant the opportunity to stop his or her conduct and remain as a tenant. The landlord could start an action for eviction if the tenant does not move out after being given a three-day notice to quit or if the tenant does not stop his conduct after receiving the three day-notice to perform covenant or quit.

There may, however, be practical problems evicting a tenant. There are many users of medical marijuana who have serious illnesses or problems with pain for which marijuana provides relief. A sympathetic tenant could make a judge or a jury reluctant to grant eviction. Even though a lease requirement to obey all laws seems to be a straightforward proposition, it is possible that a state court judge or jury may not view it as applying to a federal law violation. Certain areas have judges and juries which may not see it as their place to enforce federal law violations. A landlord would be well advised to seek out local attorneys who are familiar with unlawful detainer cases involving medical marijuana in the area prior to pursuing eviction.

Q 31. What if a tenant tells the landlord he has a medical marijuana card, and after the landlord advises him or her that the use of marijuana on the property is not permitted as it is a violation of federal law, the tenant agrees to comply with the lease, but the landlord is suspicious and does not want to rent to the prospective tenant because of the card?

A The landlord might be able to deny renting to the tenant, but it is not advisable and carries significant risks for the landlord from a risk management perspective.

In this situation, a landlord is denying a prospective tenant who has agreed not to violate any laws at the rental, based on the fact that the tenant is admitting to possible activity in violation of federal law outside the property. A landlord could probably make a business decision that he does not wish to have a tenant who participates in illegal conduct anywhere and deny the rental. However, the landlord could then open himself up to a number of potentially expensive problems if he or she is challenged on that decision.

The prospective tenant could file an action under the California fair housing laws arguing discrimination based on his or her disability/medical condition. Until the U.S. Department of Justice changes its current enforcement policy, the use by a tenant of medical marijuana for his disability off the premises would appear to carry virtually no risk to a landlord. If a sympathetic tenant, one with a serious medical ailment were to file a claim in court or with the California Department of Fair Employment and Housing, the landlord’s policy may be seen as discriminatory since it carries only a minimal risk to the landlord while denying housing to a disabled person.

Bottom line: While it might be legal for the landlord to deny the prospective tenant, the owner is taking the risk of having to fight a potentially costly legal battle, even if he or she were to win.

Q 32. What if the person applying to be a tenant states that his or her income is from being an employee of a medical marijuana cooperative or collective, or as a primary caregiver, could a landlord deny the tenant’s application?

A Probably yes, but there is some risk to the landlord for doing so. The tenant applicant has a valid position under California law, but the activity of his or her employer is illegal under federal law. Working in an operation and engaging in conduct which is illegal under federal law should provide the landlord with a valid business reason for denying a prospective tenant based on the fact that he or she does not wish to rent to someone engaged in any form of illegal activity. While California does prohibit discrimination based on source of income, that income source must be a legal source.

Unfortunately, the position of the California Department of Fair Housing and Employment on this issue is unknown. There is a risk that the Department could take the position that since again, the risk to the landlord is nominal, that the denying someone a rental for holding a job which is legal under state law is not a ground for denying the tenant. While this would seem unlikely, the landlord would need to figure out whether or not the cost of litigating the potential claim is worth the risk.

B. Commerical and Vacant Land Leasing

Q 33. Does a landlord renting out commercial space or vacant land have to rent it to a marijuana cooperative or collective, primary caregiver, or qualified patient?

A No. A landlord can make a business decision as to what type of business he or she permits in the commercial rental unit or to use the vacant land.

Q 34. If a landlord wishes to rent to a marijuana collective or cooperative, is that legal?

A Under state law it is legal, but it would be a violation of federal law to knowingly rent to a marijuana collective or cooperative which maintains a stock of medical marijuana in any from which it collects or distributes to members or which is growing and cultivating marijuana on the property.

Q 35. What are the risks to a landlord of renting to a medical collective or cooperative where marijuana is distributed, stored or cultivated?

A As long as the entity acts in compliance with local codes and state law, there is no problem under state law for the landlord to rent to the collective or cooperative. However, even under state law, if the cooperative or collective is, for example, in blatant violation of state law, and criminal action was taken against the facility, the owner of the facility could possibly also be drawn into that criminal or civil action.

Under current policy of the U.S. Department of Justice, as long as the facility is run in compliance with state law, it is unlikely that the landlord would face prosecution (Source: http://www.justice.gov/opa/documents/medical-marijuana.pdf). However, if the U.S. Department of Justice should change policy, the landlord could be exposed to possible criminal and civil penalties.

Q 36. Could the property be seized by the federal government in a civil forfeiture action?

A Yes, as in the case of a residential landlord, if the federal government were to come to the conclusion that the tenant was violating state medical marijuana laws or the U.S. Department of Justice policy were to change, the U.S. Department of Justice could initiate a civil forfeiture action to force the owner to forfeit the property to the government. While an owner may have a defense to such an action, defending such an action is very time-consuming and expensive.

Q 37. Prior to the current U.S. Department of Justice policy did the federal government take action against commercial landlords?

A According to NORML (a marijuana advocacy group), the DEA sent letters “to hundreds of California dispensary landlords warning them that their property is subject to forfeiture.” Also in 2001, the federal government used forfeiture to seize a building owned by the City of West Hollywood which had contained a dispensary which was raided by the DEA. Owners of vacant land who rent out the land for cultivation would face similar risks. (Source: http://www.canorml.org/prop/collectivetips.html)

Q 38. What types of steps might an owner, who is willing to rent to a collective or cooperative, take to reduce his or her legal risks?

A An owner of a property who wishes to rent to a marijuana collective or cooperative which will store, dispense or cultivate marijuana should take some steps to make sure that he or she is renting to a lawful facility which is unlikely to cause the U.S. Department of Justice or local authorities to charge the operation criminally which could ensnare the landlord. The landlord should also make sure there the lease can be terminated should the U.S. Department of Justice change its current policy.

Examples of the types of things a landlord should consider are:

Is the prospective tenant organized as a collective or cooperative, as required by California law?

The number of members. Cooperatives or collectives with large numbers of members, imply a larger amount of marijuana being distributed, stored or cultivated, exposing the landlord to higher risk that the operation may not be a true collective or cooperative and, therefore, in violation of California law.

The amount of marijuana being stored or or the number of plants cultivated. A cautious landlord should have lease terms which limit the amount of marijuana that can be stored or number of plants cultivated on the location at any one time. For example, a landlord might want to limit storage or cultivation to fewer than 100 plants to reduce the risk that should there be a violation of the state laws by the tenant. Should the U.S. Department of Justice get involved, the potential penalties would be less severe. Also, as a practical matter, the fewer the plants the less likely the operation is to attract the concern of the U.S. Department of Justice as it is less likely that there is some type of elaborate for profit scheme going on in violation of state law.

A landlord should consider a lease provision which would allow the lease to be terminated with limited notice should the U.S. Department of Justice change its policy and/or should the owner landlord receive a letter from the DEA stating that the business must be shut down or else the owner will face forfeiture.

While most lease provisions require a business to comply with local permits and laws, a landlord may wish to consider specific lease terms restricting how the marijuana collective or cooperative operates, in addition to the issues discussed above, in order to limit potential problems from neighbors who may object to these facilities and to help ensure that the operation is complying with state law. For example, the landlord may wish to require discreet signage and a large waiting area (so that patients are not milling about outside). Also, locations where marijuana is being stored, cultivated or distributed make tempting theft targets and the landlord may want to require that the collective or cooperative maintain enhanced security.
C. Real Property Sales

Q 39. If a property is listed with marijuana currently growing or being stored on the property, is that a material fact that need to be disclosed to a potential buyer?

A Yes. The property is currently being used in a manner that is in violation of federal law and it is likely that would affect the value and/or desirability of the property to a potential buyer of the property.

Q 40. Can a property be sold with marijuana still growing or stored on the property?

A If a person or entity with a state law right to dispense, possess and/or cultivate marijuana is leasing a property, the property could be sold with the marijuana still present because the marijuana itself is not changing hands and still belongs to the individual or entity with the right to dispense, store and/or cultivate the marijuana.

However, if the property is to be sold and the current occupants with the right to dispense, store, and/or cultivate marijuana will not be remaining on the property pursuant to a leasehold interest, the marijuana should not transfer and should be removed from the property. For example, a cooperative or collective growing marijuana for its members on a plot of land cannot sell that marijuana to non-members of the cooperative. (Attorney General Guidelines, p. 10). Also, a qualified patient growing marijuana in the yard for his or her own benefit cannot transfer marijuana to another person.

Q 41. If a property is to be sold with marijuana being cultivated, stored, or dispensed on the property (for example if the property is subject to a lease with a collective or cooperative) is that a material fact that needs to be disclosed?

A Yes. If the property is to be transferred with marijuana still being grown, cultivated or stored on the property, it is a material fact, as the potential buyer needs to fully assess whether he or she wishes to buy a property on which activity is occurring in violation of federal law with the attendant risks of forfeiture and federal criminal penalties.

Q 42. Does the fact that marijuana is being grown on a property need to be disclosed in the MLS?

A Probably not. While the growth of marijuana on a property is probably a material fact that needs to be disclosed to the buyer during the transaction, it would not need to be disclosed on the MLS. The disclosure of marijuana growth on the property on the MLS may also make it a target for potential theft or break in. If an agent and seller agree to place the information on the MLS, it should only be in agent remarks.

Note: A local MLS could enact rules requiring such a disclosure in which case that rule would need to be followed by members of that MLS.

Q 43. Should any special precautions be taken prior to showing a property with marijuana growing on it?

A Yes. Depending on the number of plants and the manner in which they are being grown, or the amount of marijuana and its storage, a listing agent will likely want to make sure that showings are by appointment only. Depending on the amount of marijuana on the property, the property could potentially be a target for theft. The listing agent may also want to screen out potential buyers who would not be interested in viewing a property where there is marijuana.

Q 44. If marijuana is currently growing or being stored on the property, but will be removed by the close, are there any special issues or concerns?

A The fact that marijuana is growing or being stored on the property as discussed in Question 38 is still probably a material fact. Also, REALTORS® should make sure that the purchase contract is clear that the marijuana will be removed prior to close of escrow and does not transfer with the property.

Q 45. Is the fact that marijuana was once grown outdoors on the land of a property, but is removed prior to the listing, a material fact?

A If the issue is simply prior cultivation then the answer is probably not. The dictionary definition of cultivation is the preparation or working of the land for crops. If the vacant land or the yard of a home was used to grow marijuana crops and currently there are currently no crops, then it is unlikely that this alone would be a material fact that would affect the value or desirability of the property and require disclosure.

Q 46. What if the plants were grown indoors but have now been removed, is that a material fact?

A Generally yes. The fact that the interior of a property had been used to grow crops is a fact that would likely need to be disclosed, regardless of whether this was done legally or not, although, this will depend to some degree on the scale and type of activity.

In a “grow house” (a residential unit used primarily for the cultivation and processing of marijuana) or in a residence in which a portion of the home has been devoted to marijuana cultivation, growth of what are effectively crops as well as the possible processing of the crop within the house, usually requires various processes which could have negative impact on the home. There are risks of fungus, mold, as well as out of code modifications to electrical and plumbing systems. The use of the home as a place to grow a marijuana clearly then would affect the value and desirability of the property and would require disclosure.

If the house simply contained a few marijuana plants in a standard houseplant pot, then disclosure would not generally be required. Keeping a few plants in pots would not require any modification to the property and once the plants were removed there would be nothing to disclose.

Q 47. If the owner or tenant on the property had been processing marijuana into a usable form on the premises, must this be disclosed, even if done lawfully?

A Probably yes. If a tenant or owner is growing plants on his or her property, unless s/he takes it to a dispensary or other place for processing, it is likely being processed for consumption on the premises. If the seller tells you this is what was done, you will need to disclose this information. The process of preparing marijuana plants to a usable form, if not done correctly, can create a risk of mold. Due to this risk of mold, a buyer should be informed so that he or she can make a decision whether or not to do a mold inspection. Also, processing marijuana may have required other modifications to the property, which may or may not have been done with permits. Disclosure should be done if the activity could result in problems and modifications to the home which would affect its value or desirability.

Q 48. What if the owner does not cultivate marijuana but states that he did smoke medical marijuana on the property?

A Smoking on the property does not need to be disclosed unless there is observable damage from that activity. For example, if there is a strong odor of smoke or there is staining or other damage.

Q 49. What if due to the use of marijuana there is a strong smell of marijuana on the property?

A The fact that the property smells of marijuana would be a material fact that would need to be disclosed.

Q 50. Do I need to disclose that a property next door to my listing has marijuana growing on it?

A Yes. A buyer most likely would want to be made aware that the property next door has a crop that is being grown on it, as it is again a use of a property in violation of federal law and the buyer may have concerns or may wish to investigate if the activity has any secondary consequences or is being lawfully or unlawfully done.

Q 51. Is it a material fact that marijuana was in the past being stored and/or dispensed from the property?

A Probably yes. The improper storage of marijuana could create both mold and fungus risks. Furthermore, modifications may have been made to the property in order to store the product.

D. Representing Persons Buying, Selling or Leasing Property Involved in Medical Marijuana

Q 52. Can a REALTOR® represent clients who state that they wish to purchase or lease properties for the purpose of dispensing, cultivating or storing marijuana, or represent sellers of property where marijuana will continue to remain on the property (a property where the leaseholder is a person or entity involved with dispensing or cultivating marijuana)?

A Yes under California law, but probably not under federal law. Assuming the conduct of the REALTOR®’s client is legal under state law, and given the current Attorney General Guidelines, the REALTOR® should face little risk of prosecution. However, the conduct of the REALTOR® is a possible violation of federal law. Assisting someone in the violation of federal drug laws could be a federal crime under various theories of aiding and abetting and conspiracy.

So while a REALTOR® at this point in time faces an apparently low risk in assisting in such transactions, REALTORS® should be aware that if their clients are conducting activities in violation of state law, and they are subsequently prosecuted by the federal justice department or state authorities, it is possible that a REALTOR® could be brought into that prosecution.

Q 53. What precautions should a REALTOR® take when assisting a client who wishes to purchase or lease a property for the express purpose of cultivating, storing, or dispensing marijuana; or a client who is selling a property with a lessee who dispenses, cultivates, or distributes which will remain on the property?

A REALTORS® who wish to lower their risk may wish to consider the following factors and questions in dealing with such clients:

If the client is an entity, is it organized as a collective or a cooperative?

If the client claims to be a primary caregiver, does he or she possess a medical marijuana ID card?

How large a membership does the collective or cooperative have or how many patients is the primary caregiver caring for? While there are no set limits for numbers, REALTORS® should be wary of handling entities which have a very large number of members as it is harder to have a true cooperative or collective structure with a high membership, and a large membership also implies large quantities of marijuana will be cultivated, stored or dispensed. The large numbers of members of the entity may raise questions as to whether the entity is a true cooperative or collective. Large quantities of marijuana are more likely to attract law enforcement attention as it suggests there may be a profit motive involved or that the entity is not a true collective or cooperative and expose the client and potentially the REALTOR® to more severe federal penalties should the federal government decide to prosecute.

REALTORS® should avoid any relationship with clients who are clearly going to violate state or local laws. A client who, for example, says he wants to find a residence to use as a “grow house” is essentially telling you he wishes to convert a residence to a use which most likely will violate local codes and could in some localities be considered a crime. Most state law compliant cooperatives or collectives will not engage in conduct which violate any laws or which are likely to start a law enforcement action. Also a client who tells you how much profit he makes from buying and selling marijuana to various people, is also clearly in violation of both state and federal law, as no profit should be made from medical marijuana activity, and the marijuana grown can only be dispensed to qualified patients under the circumstances discussed earlier.

A REALTOR® working with a collective, cooperative, or primary caregiver may wish to consider having an attorney draw up a document where the client states clearly that the entity of which the client is a part is a marijuana collective or cooperative or that the individual is a primary caregiver in compliance with state law.
Q 54. As long as the client says he will act lawfully, why should the REALTOR® worry about issues like quantity of marijuana or how an entity is organized?

A While a REALTOR® may have valid defenses against a claim or aiding or abetting a crime or conspiracy, should state or federal law enforcement prosecute the client, the REALTOR® would still be faced with having to spend money to defend any prosecution action. Furthermore in cases involving large quantities of marijuana, the potential federal penalties can be so severe, that the risk of those penalties puts the REALTOR® in a much more vulnerable position when defending a charge.

A cautious REALTOR®, therefore, will try to avoid situations where there is any suggestion that the client will not be in compliance with state law or where there are large quantities of marijuana involved.

Q 55. As a property manager of a residential unit, am I at risk renting to a tenant who is cultivating marijuana?

A There is probably not much risk to a property manager as long as the tenant is in compliance with state law and as long as the current U.S. Department of Justice policy is in place. Property managers should make sure to have the express approval of the owner before renting to anyone who states he or she will be growing marijuana on the property. It would also be advisable to only permit a tenant who has a state ID card to cultivate marijuana on the property and who expressly agrees to limit his or her cultivation to the amounts permitted by law.

Q 56.Where can I get additional legal information?

A This legal article is just one of the many legal publications and services offered by C.A.R. to its members. For a complete listing of C.A.R.'s legal products and services, please visit car.org.

Readers who require specific advice should consult an attorney. C.A.R. members requiring legal assistance may contact C.A.R.'s Member Legal Hotline at (213) 739-8282, Monday through Friday, 9 a.m. to 6 p.m. and Saturday, 10 a.m. to 2 p.m. C.A.R. members who are broker-owners, office managers, or Designated REALTORS® may contact the Member Legal Hotline at (213) 739-8350 to receive expedited service. Members may also submit online requests to speak with an attorney on the Member Legal Hotline by going to http://www.car.org/legal/legal-hotline-access/. Written correspondence should be addressed to:

Member Legal Services
525 South Virgil Avenue
Los Angeles, CA 90020

The information contained herein is believed accurate as of July 18, 2011. It is intended to provide general answers to general questions and is not intended as a substitute for individual legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Therefore, readers with specific legal questions should seek the advice of an attorney. Written by Sanjay Wagle, Esq.

Copyright© 2011 CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). Permission is granted to C.A.R. members only to reprint and use this material for non-commercial purposes provided credit is given to the C.A.R. Legal Department. Other reproduction or use is strictly prohibited without the express written permission of the C.A.R. Legal Department. All rights reserved.

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