BLOG VIEW: This week's column brings together two very different subjects – commercial real estate and medical marijuana – into a unique dilemma.
The use of medical marijuana has been legalized in 17 states and the District of Columbia, and voter approval is pending in another seven states. However, the Controlled Substance Act of 1970 makes the possession of cannabis a federal crime – even for medical usage in a physician-supervised process.
The Obama administration has made no effort to rewrite and update the 42-year-law to accommodate medical marijuana. But this creates something of a political problem: a 2010 poll conducted by ABC News found that 81% of Americans supported the legalization of medical marijuana.
Needless to say, any publicity generated by the arrest of the gravely ill patients being treated with medical marijuana would be disastrous for the administration. This is especially acute in California, which was the first state to legalize medical marijuana – and Obama will not be re-elected if he doesn't carry California this November. So how is the administration handling this mess? Simple: in the worst possible way.
According to a recent Reuters report, the U.S. Department of Justice (DOJ) is targeting honest, law-abiding commercial real estate owners in California that are leasing their retail properties to medical marijuana providers. To accommodate this, the DOJ dusted off an old civil statute – Title 21, US Code, Section 881(a)(7) – that enables the federal government to seize and forfeit real estate that is ‘used, in any manner or part, to commit, or to facilitate the commission’ of drug trafficking. The statute was designed to allow the government to take ownership of residential properties that were used by criminals to illegally grow, store or distribute marijuana.
Needless to say, there is a huge difference between a sleazy pusher peddling joints in a clandestine operation and a very tightly controlled and monitored system where physicians prescribe medical marijuana to seriously ill patients. You just cannot walk into a medical marijuana dispensary in California and yell, ‘Dude, where's the wacky weed?’
Nonetheless, the DOJ is trying to shut down California's medical marijuana operations by scaring the hell out of commercial real estate owners, with the hope that they will evict the medical marijuana businesses from their properties. Two weeks ago, federal prosecutors in Los Angeles filed asset-forfeiture lawsuits against two property owners with medical marijuana dispensary tenants. The DOJ has also sent so-called ‘warning letters’ to dozens of property owners threatening legal action if they continued to lease space to medical marijuana businesses.
According to the U.S. Attorney's Office in Los Angeles, several commercial property owners have already caved in to these legal threats. ‘Three of those actions have been resolved with the closure of the marijuana stores and court-approved consent decrees in which property owners agreed that they would no longer rent to people associated with illegal marijuana operations – or the property would be subject to an immediate forfeiture to the government,’ the U.S. Attorney's office said to Reuters.
Ah, but there's the rub – these are not ‘illegal marijuana operations’ under California law. Rather than pursue real criminals, the DOJ is harassing law-abiding commercial property owners and their tenants (who need to operate under a heavily monitored state licensing system) in an underhanded way to overrule states rights in pursuit of federal laws that have long lost their base of public support.
Furthermore, seizing commercial property is an idiotic strategy in view of today's economy. The aforementioned Reuters report included an interview with Ken Carter, a California property owner who rented commercial space to a group called the Greenhouse Cannabis Club earlier this year. The U.S. Attorney's Office in Los Angeles sent Carter a warning letter, but he was unfazed because the property is significantly underwater and he owes more than $1 million on his mortgage. The feds decided that the costs of seizing his property outweighed the benefits, and no federal court action was ever taken against him.
The Reuters report does not state if the DOJ is targeting commercial property owners in other states, but I hope they are not – if the department's legal eagles believe their scare tactics will work, they are fools. After all, the Reuters report notes that four years ago, the U.S. Drug Enforcement Administration tried another strategy by attempting to scare away banks and credit card companies from having medical marijuana businesses as customers. However, today's national medical marijuana industry is estimated at $1.7 billion annually – and I somehow suspect that those involved in the industry are not hiding their profits in pillowcases stuffed with cash.
Really, if the DOJ wants to go after bad guys in California, how about aiming their attention at Gov. Jerry Brown's reneging on the National Mortgage Settlement requirement that the state spend its direct payment funds on foreclosure prevention and housing-related issues – and not on plugging up a $16 billion state deficit? Or how about putting some of the Residential Mortgage-Backed Securities Working Group attorneys on the trail of California resident Angelo Mozilo (remember him)?
California's troubled commercial real estate sector has enough problems, and this new stupidity is the very last thing it needs. I've heard of ‘Reefer Madness,’ but this is ridiculous!
– Phil Hall, editor, MortgageOrb
(Please address all comments regarding this opinion column to hallp@mortgageorb.com.)
(Photo from ‘Reefer Madness’ courtesy of the New England Underground Film Festival.)
