Insurance Insights

Commercial real estate and the cannabis industry

cannabis

As Canada prepares to legalize cannabis in 2018, there are a number of considerations and precautionary measures that must be taken for those in the commercial real estate industry. 

Prior to leasing space for the production, sale and distribution of cannabis, landlords should be reviewing their standard leases and making the necessary amendments to address the issues that may arise with tenants. In particular, a landlord with multiple tenants on a property should ensure the lease incorporates a method for handling complaints from neighbouring tenants. In some cases, leases with other tenants may prohibit the landlord from leasing the space for a cannabis related operation altogether.

Additionally, the lease should specify who bears the responsibility for extra costs for insurance, safety and security. Insurance costs for the property could increase significantly for cannabis related operations and there may be a number of upgrades required to comply with local safety requirements and properly secure the facility.

With Bill C-45, which outlines how production, sale and consumption will be federally regulated, individual provincial and municipal governments will be given the authority to establish further limitations and conditions. Municipalities will be able to determine where they will allow cannabis operations. Landlords will need to be aware of their local zoning bylaws and any applicable restrictions prior to even beginning negotiations with potential tenants.

Although there remains substantial uncertainty around the legal landscape for the cannabis industry, landlords and tenants should begin preparing now to address all the foreseeable risks and challenges once legalization arrives.

For more information and resources on risk management for property owners and managers, please contact us.

Source: “Cannabis, Commercial Real Estate and the Environment — Things to Consider Before You Get Into the Weeds” by Joseph Grignano, Jonathan Kahn, Tara Piurko and Grace Smith (June 15, 2017). 

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