Oregon was the first state in the nation to decriminalized possession of cannabis, all the way back in 1973, though the official “legalization” ballot effort in 1986 failed to garner enough votes. In 1997, possession was recriminalized with HB 3643, and a ballot measure to legalize weed failed to get enough signatures in 2010. Medical marijuana laws were moving steadily forward throughout the end of the 20th century, but another 2010 ballot measure to license medical marijuana dispensaries was shot down by a narrow margin. In 2012, the state had a recreational weed ballot measure qualify, only to get shot down by voters 53%-47%. Recreational Marjuana efforts saw more success with 2014’s Measure 91, a bill largely rejected by Eastern Oregon, approved by the Metro, coast, and Marion County areas, and funded by out-of-state entities interested in running the recreational pot experiment in Oregon. Marijuana sales were officially declared legal in 2015, despite the drug remaining a Schedule I drug federally. The drug has a conflicted history in the state and its impact on real estate is no different.
Marijuana hits the real estate industry in two primary ways – (1) purchasing property formerly used for growing marijuana, and (2) purchasing property to either grow or sell marijuana.
Buying Former/Present Grow Operations— NAR released a study in 2020 about how brokers handle selling land that was formerly used for growing marijuana. The study found that most brokers [about 3/4] err on the side of disclosing that the property was used to grow marijuana. It should be noted though, that there is no technical requirement that the Seller disclose that information, it’s more a broker-by-broker preference. To complicate matters, the Seller Property Disclosure Statement asks whether the property was used for any illegal drug manufacturing. Marijuana is legal at a state level, but illegal at a federal level. Even if it was illegal, ORS 93.275 explicitly notes that “the fact or suspicion that the real property or a neighboring property was the site of a crime” is a strictly immaterial fact [i.e. A Buyer cannot claim misrepresentation through omission occurred when terminating because the fact it was an illegal grow operation is legislatively immaterial and therefore cannot support a termination]. There are a few ways this can go —
(1) weed growing is not considered “illegal drug manufacturing” and therefore does not need disclosure,
(2) weed growing is illegal at a federal level and therefore it’s “illegal drug manufacturing,” but Seller chooses to not disclose it because it’s immaterial, potentially allowing a Buyer to argue “you failed to fill out the SPDS as required,” and terminate, or
(3) weed growing is illegal at a federal level and therefore it’s “illegal drug manufacturing,” Seller discloses the former grow operation to Buyer within the SPDS, but is under no compunction to provide more information as under ORS 93.275, further detail is immaterial.
(4) weed growing is illegal at a federal level and therefore it’s “illegal drug manufacturing,” Seller discloses the former grow operation to Buyer within the SPDS and provides as much information as Buyer wants.
The disclosure about whether the property was formerly a grow operation will ultimately need to be the client’s informed decision. They will need to weigh the language carefully and consider what information they wish to share given the conflicting laws and language.
Further complicating things, in 2023, SB 326 was signed into law making landowners responsible for cleanup of cannabis, irrigation systems, greenhouses, hoop houses, and other structures and chemicals used in an illegal cannabis operation on the landowner’s property. If the landowner gets notice from law enforcement that an illegal operation exists, they have 30 days to clean it up, otherwise the city or county can do it and bill the landowner [or place a lien for the cleanup costs if it goes unpaid]. Ignorance is not a defense in these situations either, so whether it’s a tenant who is operating under a forged cannabis license, or a guerrilla grow operation hidden in the back of a vacant lot, the land owner will be responsible for the cleanup or risk a lien.
If there is a legal growing operation, such as one with a license, the right of emblements under ORS 91.230 applies and the tenant-farmer has a right to continue entering the property to cultivate and harvest their crop. This can mean surprise guests for a Buyer for several months after the sale. Buyers should beware and be aware of the risk that cannabis operations can pose.
Buying land to Grow or Sell Marijuana – For better or for worse, marijuana is here to stay in Oregon and many businesses have set down roots and tried to get a piece of the pot pie. There is a notable lack of lending in this arena, as the federal institutions like Fannie Mae and Freddie Mac will refuse to acquire a lender’s loan if the property is used for “illegal activity,” and since Fannie and Freddie are federal institutions, they use federal definitions, so a grow operation or a pot shop is going to be considered a den of villainy under federal lending guidelines. Borrowers can acquire loans with secret intentions to grow/sell, but if the bank ever discovers the illicit usage, it can call the loan and demand full repayment. This tends to mean that many marijuana related properties are sold under seller-financing, introducing a separate set of risks into the transaction.
It’s also not something where the purchaser can just close the deal and open up shop. the Oregon Liquor Control Commission (OLCC) must approve the business and process the license. This has led to a subtle value add in purchasing property that is presently being used as a marijuana dispensary, as the previous occupant can lease the space under their license while the new owner awaits license approval.
Title insurance can also be an issue. There was an attempt in 2021 to plug the marijuana-title issue using HB 2806, but the bill died in committee. The bill would have made it illegal for a title company to refuse to issue a policy or to refuse to close or insure a property if it was being used to grow, produce, manufacture or sell cannabis. No similar bills have been introduced since, so the question of title will be a case-by-case answer. Some groups will insure cannabis real estate with exceptions, some will refuse to insure cannabis properties, and others may simply have policies that insure cannabis real estate.
Insurance in general gets complicated in weed-land. Business insurance will sometimes refuse to insure cannabis companies, property insurance may refuse to cover cannabis plants that go up in flames. The consumer will need to review their policies closely to know if the policy covers them.
There are separate limitations on location that prohibit marijuana retailers within 1000 feet of kindergartens or schools, though OLCC can approve distances between 500-1000 feet if there is a physical barrier that blocks children from travelling to the retailer [e.g. Pot shop across the river from the elementary school is allowed under ORS 475C.101]. Worth noting that SB 162, currently moving through the House, would repeal the geographic restriction limiting pot shops from being near kindergartens, but retaining the limitation for other public schools.