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May 22, 2019 Practice Points

Marijuana-Related Businesses Pose Legal Issues for Those Seeking Title Insurance

It is critical to understand your insurance options and speak with your title insurance professional at the inception of the transaction.

By Jason C. Bergman

The collision of state decriminalization of marijuana and the continued prohibition under federal law sets up yet another legal quandary under title insurance seen in other areas such as banking. In recent years, 10 states and the District of Columbia have legalized recreational marijuana and 33 states have legalized medical marijuana. The decriminalization of marijuana in these states has created an emerging market for the production, distribution, and sale of marijuana. The influx of dispensaries and growers acquiring and leasing agricultural and commercial properties has led to increased requests for title insurance.

Although most title insurers presently decline to insure title to land that is known or intended to be used for any lawful purpose under state law for recreational or medical marijuana activities, including cultivation, storage, transport, manufacture, retail, or distribution, at least one title insurer will. Note that most title insurers will still issue informational reports (not insurance) for marijuana-related transactions.

There is a general prohibition against insuring properties related to marijuana, but due to the recent federal decriminalization of hemp (see, The Agriculture Improvement Act of 2018 (P.L. 115-334)), a property that is currently or will be used for the production, sale, or distribution of hemp is eligible for title insurance.

Nevertheless, while certain states’ laws may now permit these activities in some regulated fashion, these activities remain illegal under federal law, which is why the primary risk for a title insurer is federal enforcement. To combat this, a title insurance policy will include an exception for federal enforcement; as such, the policy will not cover loss or damage arising from or relating to federal enforcement (e.g., forfeiture and seizure of assets, including real property).

While banking seems to be the most complicated area for such businesses, real estate ownership (and title insurance) does not have to be. Whether your client is involved in the marijuana industry or is purchasing, leasing, or financing a property that has a recreational or medical marijuana component (e.g., a tenant), it is critical to understand your insurance options and speak with your title insurance professional at the inception of the transaction.

Jason C. Bergman is a vice president and underwriting counsel with Kensington Vanguard National Land Services in New York City, New York.

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