With cannabis operations legalized in late 2018 and edibles legalized a year later, marijuana producers and distributors are growing at an unprecedented rate. That means if you are a facility or business owner, you’re more likely than ever to be leasing space to one of these operations.

Standard property insurance may not be enough to protect you from damages caused by a cannabis business. In addition, obtaining property insurance specific to the cannabis industry is a challenge for both producers and distributors and their landlords. Even when engaging the few carriers that provide reliable, dedicated cannabis property coverage, premiums are costly, limits are restrictive and coverage can be deficient compared to the standard insurance policies. Choosing to not disclose your cannabis operations to a property carrier could pose an even greater liability – and is an inevitable recipe for claims denial.

For landlords with cannabis operation outlets on site, a careful review of the lease is crucial. Consider the following seven clauses that may require extra attention:

  1. Permitted Use Provisions: Begin by specifically identifying the activities that are allowed on the premises.
  2. Indemnity Clause: In addition to the standard language, add a clause indemnifying the owner for any damage done to the property as a result of robberies, break-ins and burglaries. You may also wish to specifically mention indemnification against criminal prosecutions and forfeiture seizures.
  3. Owners Early Termination Rights: Because of the additional exposure to legal risk, you may need a clause allowing you (the owner) to terminate the lease early. Some reasons for early termination may include nuisance claims for odours or loiterers, loss of use of the property due to revoking a permit or license, or actions by other owners of your property for alleged violations of restricted covenants.
  4. Warranty of Suitability: Making premises suitable for cannabis production requires significant alteration to the property. Alterations to the warranty of suitability may be required, including a list of improvements necessary. You (the owner) should agree to cooperate, but ensure that the tenant is solely responsible for securing necessary permits, licenses and other approvals.
  5. Tenant Improvements: In a similar vein, clearly state that the tenant is responsible for making any improvements and alterations at its own expense – as well as paying again at the end of the lease to dismantle and remove any improvements you request.
  6. Owners Right to Inspect: As an owner, you have a right to inspect the premises. Legally, however, there are likely areas of a cannabis operation with restricted access. Establish a procedure enabling you to do inspections without forcing the tenant to violate its duty to limit access to sensitive areas – and detail that procedure in the lease.
  7. Operating Expenses: Add a clause requiring the tenant to cover any additional operating expenses, such as nighttime security guards.

Of course, every situation is unique and should be treated carefully. Consult with your risk management team (including your risk advisor and your lawyer) to ensure your lease adequately protects you and your property.

HUB’s real estate and cannabis specialty can help safeguard your portfolio from the risks and challenges unique to cannabis exposures, institute risk management practices and procure the right insurance policy. Contact the HUB Real Estate team today.