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Medical Marijuana Dispensaries Are Landlord Challenge

By LINDA COBURN Contributing Reporter Recent statements from the U.S. Attorney General have local commercial real estate brokers scrambling to respond to a surge of interest in locations for medical marijuana dispensaries. But some say landlords should be mindful of the pitfalls of renting space to this type of tenant. “I think it’s a bad move to lease to them,” said Richard Leyner, senior vice president at NAI Capital. “I advise my clients against it.” He cited a variety of reasons why he gives that advice, not the least of which is the criminal element. Leyner also added that the pungent smell of the herb, even when it is not being smoked, can permeate a building and cause complaints from other lessees. He also cautions landlords about the problems they might have with the federal Drug Enforcement Agency, notwithstanding the new administration’s statements that they would make good on President Obama’s campaign promise to end punitive federal DEA raids on medical marijuana facilities in California. “The government said they’re going to let it go at this time,” said Leyner. “They didn’t say the law (making the sale of marijuana a federal crime) was no longer on their books.” The DEA’s raid of a San Francisco-licensed facility subsequent to Attorney General Eric Holder’s announcement in February bolsters Leyner’s point. Not only that, but the dispensaries operate now in a foggy gray area of regulatory mish-mash. Rather than trying to close clinics directly, the DEA has generally focused its efforts to quash the problem by targeting landlords. Letters are sent to those who own buildings housing dispensaries telling them they may be subject to criminal prosecution and seizure of their property and other assets if they continue to allow the marijuana centers to stay onsite. The state Attorney General has developed “guidelines” for how the facilities are to be sited and operated, and Los Angeles County has amended its zoning rules to allow the clinics in commercial and manufacturing zones and has guidelines for signage, security, lighting, etc.; but the City of Los Angeles has officially had a moratorium on new dispensaries since November 2007. Regulations are being worked on right now by the City Council and others that are hoped to be in effect by the time the moratorium expires in six months. The moratorium certainly hasn’t stopped the proliferation of the facilities. There are at least 70 medical marijuana dispensaries or “cooperatives” in the San Fernando Valley, according to Los Angeles Deputy Police Chief Michel Moore. The California NORML (National Organization For The Reform Of Marijuana Laws) website shows Van Nuys as the capital, with more than triple the number of sites (17 total) than any other in the 818 area code. Landlords should take the crime factor very seriously, said Moore. “It’s our experience that every medical marijuana dispensary in the Valley has been a victim of a burglary or a robbery at least two times in the last two years. So as a location, they have been ripe for attacks by criminals who are seeking to rob them or victimize them of drugs and money.” A Mission Hills clinic was robbed at gunpoint in November by two men who fired their weapons but did not injure anyone. Several hundred dollars in cash and an unknown amount of drugs were stolen. Not everyone who runs or patronizes the medical marijuana facilities are problematic, Moore emphasized. “Undoubtedly there are some clients that have conditions that are legitimate as to the use of medical marijuana but it’s been our experience also that a far greater percentage are simply using the allowance of the law to buy a narcotic from a retail establishment,” said Moore. “We’ve had some locations that have existed very quietly and we’ve have had other locations where we have seen an uptick in property crime, primarily, and complaints from surrounding neighbors of illicit activities like people consuming narcotics in the open outside of the establishment and loitering about in a manner that’s creating a concern for peoples’ safety and well being.” But the lure of finding a tenant to occupy empty space is causing landlords to disregard these concerns. Jay Martinez of Lee & Associates said that while landlords used to just categorically say no to this kind of tenant, the economy has changed that. “It’s still difficult to get a location,” said Martinez, “But they pay above-market rent or close to it, and typically they’ll do their own tenant improvements too.” Those two things, he said, have given a lot more landlords “a propensity to say yes.” Inquiries seeking space for the dispensaries have increased 10-fold since Elder’s announcement, said Leyner. “My team, that’s four of us, gets probably five or six calls a day, requesting space,” for this type of use. Martinez, too, has been fielding more calls. “The last two months we have seen an uptick in activity,” he said, attributing the rise more to the increased amount of space available in the Valley.

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