Landlords Just Saying No To Cannabis

It seems MedMen’s (OTC: MMNFF) recent pushback against Thor Equities is having a rippling effect across the real estate market. Last week, Green Market Report published a story about MedMen’s legal efforts with regard to the rental payments for a property in Chicago. MedMen had signed a lease on a property with Thor Equities, but then quit paying the rent. Thor Equities says MedMen owes them almost $1 million. The complaint notes that there isn’t any disagreement over the lease and the rent not being paid. MedMen would prefer not to have to pay the money that is owed.

The issue that is irritating some cannabis industry insiders is that MedMen doesn’t want Thor Equities to move the case from the New York Federal court where it was originally filed to a California state court. MedMen wants the case to stay in New York and is arguing that the lease contract isn’t enforceable because cannabis is federally illegal. Real estate companies were already leery of renting to cannabis businesses and this argument is another reason to stay away.

Kristin Jordan, the founder of Park Jordan is a commercial real estate broker and lawyer in New York and consults with cannabis companies. The first applicants for New York are called the Justice applicants because they, or their family members, have previously been arrested and convicted of an applicable cannabis offense. She said, “I recently spoke with a prominent NYC broker and was informed that his clients have received upwards of 12 LOI’s (letters of intent) from CBRE, the firm tapped by the Dormitory Authority of the State of New York to secure sites for the Justice applicants. He said the landlords do not understand the program and are not interested in this at all.” DASNY (Dormitory Authority of the State of New York) is the agency chosen to oversee the financing of the build-out construction of the retail sites.

Thor Equities was successful in the courts in California against High Times which took over a lease contract when it acquired a license from Harvest Health. The court ruled that the back rent had to be paid and that the contract was enforceable. High Times owes $5 million in back rent.

If MedMen is successful in its argument in New York, it would easily scare away most landlords if they think a cannabis tenant could just walk away or that they would get in trouble for renting to a company that is operating in a federally illegal industry. So far, the judge in the case has been critical of Thor Equities and has made the company reword its complaints. That has put the real estate community on edge. What if the case stays in New York & what if Medmen wins? What landlord would ever sign a contract with a cannabis company if the courts won’t enforce the contract?

In the early days of the cannabis industry, most companies raised money to outright buy the properties they wanted to occupy. Banks wouldn’t lend for a mortgage and landlords didn’t want to rent to them, so they paid cash. Cannabis businesses often ended up in depressed areas of real estate because prices were more affordable. As more states legalized cannabis, landlords had begun to gain some comfort with renting. 

If cannabis companies have to go back to the days of buying properties, it could further dampen efforts in new markets like New York. Commercial real estate is incredibly expensive even in the most undesirable neighborhoods.