Conflicting local and federal laws, along with NIMBYism, could be slowing investment in marijuana-related facilities.
At last count, 33 states have authorized cannabis for medical use, with 11 also permitting recreational use. Recent public opinion surveys suggest historically high support for continued and expanded cannabis access. For example, a March 2019 Quinnipiac University poll found that American voters believe, almost two to one, that “the use of [all] marijuana should be made legal in the U.S.” Support for medical access comes in even higher, at more than 18 to one, if a doctor recommends it.
While the public’s attitude toward medical and adult-use cannabis appears to be evolving, the opinions of many municipal governments haven’t changed much. They continue to restrict cannabis businesses in their communities through zoning ordinances, moratoriums and other measures.
A Tough Regulatory Framework
As outlined in the Boston Globe last year, at least 189 of 351 municipalities in Massachusetts prohibited marijuana retail outlets or dispensaries, as well as most cultivation facilities and other cannabis businesses. While close to 100 or so of these licensing moratoriums expired at the end of 2018, more than 80 indefinite bans remain in place throughout the Bay State. Although 54% of Massachusetts voters approved the 2016 ballot question authorizing certain cannabis activities, “proponents of marijuana have fared poorly in local votes on proposed bans and moratoriums: All but a handful have passed,” according to the Boston Globe report.
Cannabis businesses in Massachusetts have also had to deal with unhappy neighbors. In 2017, the owner of several commercial property holding companies in Cambridge filed a federal lawsuit against a dispensary in the area, accusing the retailer of conspiring to sell marijuana in violation of federal law. The plaintiff sought $27 million in damages, citing reduced property values. Similar lawsuits have been filed against cannabis businesses in other states.
Even in places where cannabis businesses are welcome and allowed to operate, they can face many real-estate-related challenges. These include a lack of commercial lending options, difficulty locating a willing landlord, and trouble finding existing facilities that can be outfitted to comply with strict state laws and regulations.
Despite changing attitudes, the fact remains that cannabis — with the exception of hemp, which is cannabis with a delta-9 tetrahydrocannabinol (THC) concentration of not more than 0.3% on a dry weight basis — is illegal on the federal level. Most banks will not loan money to businesses or individuals seeking to purchase or lease real estate that will be used for growing, processing or dispensing cannabis, even if it is intended for medical use.
On February 14, 2014, the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury issued guidance to clarify Bank Secrecy Act (BSA) expectations for financial institutions seeking to provide services to marijuana-related businesses (MRBs). The FinCEN guidance aims to clear up “how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations.” There are currently 493 banks and 140 credit unions in the U.S. that are providing banking services to MRBs.
To ease some of the cannabis industry’s banking-related challenges, Rep. Ed Perlmutter, D-Colo., recently introduced the Secure And Fair Enforcement Banking Act of 2019 (the SAFE Act). The legislation, which would increase public safety by ensuring that legitimate cannabis-related businesses and service providers have access to financial services to reduce the amount of cash they have on hand, passed out of the House Committee on Financial Services in March 2019.
The bill would provide a safe harbor for depository institutions that provide financial services to cannabis-related legitimate businesses or service providers; offer certain protections for ancillary businesses that work with cannabis-related legitimate businesses; and offer protections for federal reserve banks and depository institutions that provide financial services to cannabis-related legitimate businesses or service providers, or that further invest any income derived from such services.
Some states are also attempting to open up the financial services market to cannabis businesses within their borders. For example, the California State Senate passed a bill in May 2019 that would allow private banks and credit unions to apply for a “limited-purpose state charter so they can provide depository services to licensed cannabis businesses.”
Additionally, some local regulations for operating cannabis businesses are starting to change.
In Anne Arundel County, Maryland, which has traditionally had some of the strictest zoning laws for cannabis businesses in the state, the County Council adopted a measure in April 2019 to loosen some of its restrictions. Specifically, the county reduced the distance requirement between dispensaries and residential units, and modified the signage requirements with which cannabis businesses must comply. The legislation also allows dispensaries to qualify as special exceptions within certain zoned areas and ask for variances.
Missouri voters authorized marijuana for medical use last November. According to a report in the Kansas City Business Journal, that city’s planning department announced that it “isn’t going to recommend implementation of special-use permits for zoning medical cannabis businesses, choosing instead to rely on existing code.” Kansas City’s planning department says it will propose some zoning ordinance amendments, which would require city council approval, to clarify how cannabis companies should be treated from a zoning perspective.
Despite the easing of some zoning restrictions, cannabis businesses can often face many significant systemic challenges, particularly companies that have locations throughout a state. The wide variability in approaches to zoning suggests that businesses should adopt a locality-by-locality strategy.
Additionally, prospective cannabis licensees generally have to select business locations when they first apply for such licenses — in other words, before these companies, or the localities, have a sound understanding of what siting restrictions might exist for such businesses.
Where Is It Legal?
A total of 22 states have approved marijuana for medical use. Additionally, the District of Columbia and 11 states also allow recreational use of cannabis.
States and jurisdictions where marijuana is legal for recreational use: Alaska, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont, Washington, the District of Columbia.
States where marijuana is legal for medical use: Arizona, Arkansas, Connecticut, Delaware, Florida, Hawaii, Louisiana, Maryland, Minnesota, Missouri, Montana, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, Utah, West Virginia.