All sorts of insurance is necessary for cannabis grows, but landlords leasing out to a marijuana grow facility also need to consider whether they have the right sort of marijuana insurance coverage before signing contracts. Due to the illegal status of marijuana federally, being involved in a business that touches the actual plant violates many contracts.
There is a lot to consider when accepting cannabis grows as tenants. Liabilities from the fire hazards involved with all of the lighting and energy used is a very real risk. If the cannabis grows are also extracting concentrates like cannabis oils, a lot of volatile and heavy equipment is often used.
Typically, a landlord has already entered into many business relationships and documents pertaining to its property, years before contemplating leasing to a cannabis facility. The landlord has likely executed financing and insurance documents, which may be jeopardized by a cannabis lease. As discussed below, a landlord may inadvertently breach provisions in those documents by executing a lease for a cannabis facility.
The loan documents were probably executed well before it was ever envisioned that marijuana (whether medicinal or recreational) would be legal under various states’ laws. Those documents may very well contain a provision noting that the landlord/borrower will not use the property in connection with any illegal activity. As the cultivation and use of marijuana are illegal under Federal law, the mortgagee has an argument that leasing to a cannabis facility automatically breaches the loan documents.
Another possible concern relates to insurance policies. The landlord will generally hold various types of insurance policies related to property damage and liability. Those policies very likely have language excluding or limiting coverage for illegal or non-permitted activities. Therefore, those policies should be thoroughly reviewed and modified through endorsement to ensure full and adequate coverage.
If you are considering taking on cannabis grows as tenants, reach out to S2S Insurance. Eric Rahn and David Rahn stand by to address any questions and make you aware of your alternatives as a landlord to a marijuana grow.