Marijuana is Legal… But what about Marijuana Real Estate?
Regardless of your stance on the issue marijuana has been legalized in the state of Michigan. The recreational marijuana law, officially known as the Michigan Regulated and Taxation of Marijuana Act was passed by voters with Proposal 1 last November. There are still many unknowns with the new law, especially in relation to real estate. Hopefully this will help clear some of that up.
First, as of December 6th 2018 you can grow, consume, and possess marijuana, but you can not purchase it, sell it, trade it, barter it, etc. Meaning you can only use marijuana that you yourself have grown. Michigan’s Department of Licensing and Regulator Affairs, or LARA, has not created, or put in place any of the laws or rules that deal with the business/sales side of marijuana. They expect to have guidelines within the next year, however until that date, all business associated with marijuana is still considered illegal in Michigan. You can read more on that here.
Second, the law isn’t as simple as many thought. Just because Proposal 1 passed, doesn’t mean there aren’t other restrictions. The biggest one being seen so far is that the law gives smaller government bodies the authority to decide on the legalization in their jurisdiction. IE- City’s, Townships, Village’s, etc. have the write to ban marijuana if they so choose. Both in regards to business’s and recreational use. This has already been seen at many government levels throughout the state, include Sault Ste. Marie, Fremont, Mancelona, and even the City of Traverse City, which voted 5-2 to to ban recreational sales inside the City Limits.
Third, even though Michigan did pass the law, marijuana’s use(business or otherwise) is still illegal at the federal level. This adds another twist to the situation. In other states that have legalized marijuana, such as Colorado; business’s such as marijuana dispensaries(even when they are legal,licensed, tax paying corporations) have been raided and seized by the Federal Government.
So lets get bring this back to real estate. Not only in Michigan, but in most states, insuring real estate transactions which involve the illegal or legal use of marijuana is not allowed. The main reason it can not be insured is outlined above. As long as the Federal Government considers it illegal, it has the authority to seize the property. This doesn’t just pertain to title insurance, most, if not all other insurances, such as home owners(hazard), renters, liability, E&O, etc. also will not insure a property that is being used for marijuana purposes.
This means that lenders cannot give a loan on a marijuana property, as they require a loan policy of title insurance, which can’t be provided. Limiting any sale or purchase to cash transactions. The final issue would then be finding a closing company/agent willing to handle the transaction. Many title insurance agents in Michigan are not authorized to close transactions that don’t include title insurance. Those that can probability won’t take on the additional risk.
We don’t know if this will change with more states legalizing marijuana. But as of right now, the underwriters of Michigan have taken a hard stance that property used for marijuana purposes can not be insured. As things change, and the law is better understood we will keep you updated with all of the changes.