Main banks like JPMorgan Chase and Wells Fargo, in addition to landlords akin to BentallGreenOak and Ashkenazy Acquisition Corp., have found themselves indirectly involved with New York Metropolis’s unlicensed hashish dispensaries, probably exposing them to authorized points. This case arises as a result of proliferation of unlicensed retail retailers within the metropolis, with as many as 2,000 of them now working since New York legalized leisure marijuana in 2021.
A new law generally known as Native Regulation 107 of 2023 (“LL 107”) that got here into impact in July permits town to high-quality landlords as much as $10,000 in the event that they knowingly lease house to tenants who illegally promote hashish. (See our commentary right here.) Whereas hashish consumption is authorized on the state degree in New York, it stays unlawful on the federal degree. Banks receiving funds from hashish gross sales, and particularly unlicensed hashish dispensaries, might face regulatory penalties.
An evaluation by PincusCo and Bloomberg revealed that greater than two dozen landlords had a number of unlicensed hashish shops as tenants. It may be difficult for some landlords to find out whether or not their tenants plan to promote hashish, as a few of these shops initially appeared as comfort shops or bodegas that later added hashish merchandise alongside snacks and cigarettes.
Landlords making an attempt to evict tenants engaged in unlawful hashish gross sales have encountered a sluggish eviction course of. Some circumstances received’t attain a courtroom till September, even after receiving notices from the Manhattan District Legal professional’s Workplace.
Banks which have financed properties with unlicensed hashish tenants might additionally face repercussions. A Bloomberg analysis discovered that JPMorgan Chase & Co., Signature Financial institution, Financial institution of America Corp., Wells Fargo & Co., and New York Neighborhood Financial institution had quite a few mortgages for properties leased to unlawful smoke retailers. Banks have been cautious in states the place leisure hashish gross sales are authorized, together with language in mortgage agreements that might put debtors in default if the property is utilized in violation of federal legislation.
The takeaways listed here are that failing to conduct correct due diligence might: 1) result in critical tenant complications, together with publicity underneath LL 107 with respect to unlicensed dispensaries, and a pair of) expose issues concerning the energy of the financial institution’s anti-money laundering packages. Banks and all different landlords ought to take care to diligence their incoming retail shoppers fastidiously, and embody sturdy lease language with respect to “allowed use” on website.