We have run quite a few real estate deals in Oregon, Washington and California cannabis. No two deals are the same, and as we previously have written, buying and selling land for pot ventures is a trip. An obvious reason for this is the lack of banking services, but another big reason is lack of certain title company services, like escrow. If you are hoping to enlist a title company as escrow in your cannabis property sale, we say to you, “good luck.”
Typically, title companies handle all of the paperwork to close a standard real estate transaction. It is probably easiest to think of these services in three distinct parts: (1) receiving, holding and sending money and key documents (escrow); (2) providing a spot for the parties to iron out details toward the end of a deal (including deeds and other formal documents (closing)); and (3) issuing title insurance. By providing this suite of services, a title company can serve as a “one stop shop” for closing most real estate deals.
Pot deals, of course, are different.
In our experience, title companies generally will close a cannabis deal, and they will even provide title insurance in most cases. However, they generally will not facilitate the exchange of funds. This seems strange initially, but it relates back to banks, and the fact that many banks refuse to service businesses even indirectly involved with cannabis. That includes title companies. Thus, title companies often have formal policies against serving as escrow in cannabis deals, especially where the land already is being used for a pot-related purpose.
Fortunately, it is possible to close a real estate sale without a title company performing escrow services. In those transactions, the buyer and seller will usually engage an attorney to serve as escrow, and the attorney will take instructions on how and when to distribute funds. Though attorneys tend to be more expensive than title companies for this purpose, they are safer than fringe operators offering escrow services, and an attorney worth her salt should be able to run the exchange efficiently.
With respect to title insurance, title companies generally will issue these policies on the rationale that the insurance product relates to land ownership, rather than to the activities taking place thereon. Of course, most title insurance policies in marijuana-related transactions will expressly exclude coverage for governmental actions, including civil and criminal forfeiture under the federal Controlled Substance Act. Before purchasing title insurance, we strongly recommend that the buyer disclose their intended use of the land. Otherwise, the title company has an argument not to pay on claims.
In the coming months, we expect to handle more and more real estate deals for pot businesses and also sellers. The California land grab will heat up in that state’s pot friendly counties, and our Oregon office has seen another spike in land deals from November’s local election results. Our Washington cannabis lawyers are also seeing an increase in land sales, mostly attributable to growers who got in early, but now wish to sell.
Ultimately, the laws around the purchase and sale of commercial real estate tied to cannabis are complicated, and vary state by state. An experienced cannabis attorney with commercial real estate chops will be able to facilitate the purchase or sale of real estate for pot commerce, from title examination through recording the deeds. The attorney will know how to work with the parties’ chosen title company to push the deal through, and how to navigate the unusual aspects of these transactions, like escrow.