In 1996, California became the first state in the country to legalize the use of marijuana for medicinal purposes. Over the course of the years that have followed, 22 other states and the District of Columbia have joined California in enacting laws that permit the medical use of marijuana. And an additional 12 states have passed legislation paving the way for certain medical patients to legally use cannabis extracts.

Some states have gone even a step further, with Alaska, Colorado, Oregon, and Washington all having legalized marijuana for recreational use as well. Seven other states are currently looking to do the same, as the potential to generate millions of dollars in tax revenue annually makes the legalization of recreational marijuana a lucrative proposition. Voters in the District of Columbia have also approved legalization of recreational marijuana and though its implementation was apparently overruled by Congress as part of its spending bill, officials there have been looking into ways to implement recreational sales of marijuana going forward.

Though nearly two decades have passed since the first state legalized marijuana, federal law continues to classify it as an illegal drug. The U.S. Drug Enforcement Agency lists marijuana as a Schedule 1 substance under the federal Controlled Substances Act that was enacted in 1970, meaning it is illegal to cultivate, distribute or possess the drug. This classification, which includes heroin and LSD, carries the toughest criminal drug penalties and recognizes no medical use.

So given the risks, can a multifamily owner or operator adopt a bright-line rule against marijuana use on its properties? The issue becomes difficult to resolve in states that allow the medical use of marijuana. Consumers in all states, for instance, are protected by the Health Insurance Portability and Accountability Act of 1996 (HIPAA), which provides that it is both a crime and a civil rights violation to invade someone's medical privacy for certain businesses. Thus, if one were to broadly exclude marijuana use on a property, in a state where medical marijuana is allowed, that owner or manager might be restricting the tenants' rights to their medicine and forcing the disclosure of their private health information.

Additionally, accepting a loan in the form of borrowed funds, including one that involves a federal component or federal backing, mandates numerous disclosures and agreements. If you are a property owner acquiring that loan, you must now understand what loan requirements you are agreeing to contractually guarantee as part of the loan process. For example, signing that you agree that your property will comply at all times with both state and federal law opens the potential that a resident might use medical marijuana on the property. This promise to comply with the law compromises your ability or rights to prevent such use, and exposes you to risks ranging from a claim that you have breached the loan documents, to foreclosure, or to an allegation of civil or criminal fraud in the loan process.

The deep divide between how the federal government and many states are handling marijuana regulation continues to be a serious concern for those in the real estate industry. When one adds in the requirements set by other state statutes such as privacy rights, medical rights, or disability laws, situations become potential landmines for property owners and managers. In addition to lending requirements and disclosures, concerns can encompass subsidized housing policies, landlord/tenant disputes and habitability standards.

The CARERS Act, however, may bring relief to those in the real estate industry impacted by incompatible medical marijuana legislation at the federal and state levels. The bill has recently been introduced in the U.S. Senate by a bipartisan group comprised of Senators Cory Booker (D-New Jersey), Kirsten Gillibrand (D-New York) and Rand Paul (R-Kentucky). Following the introduction of the CARERS Act in the U.S. Senate, an identical bill has been introduced in the U.S. House of Representatives by the bipartisan team of Representatives Steve Cohen (D-Tennessee) and Don Young (R-Alaska). “The CARERS Act aims to protect states that have legalized medical marijuana and allows them to properly enforce their own laws. My position aims to reaffirm the states' rights to determine the nature of criminal activity within their own jurisdictions, which I believe is critical for states to effectively legislate within their borders,” said Representative Young.

If the CARERS Act is passed and signed into law, landlords, lenders and others may finally be given some clear guidance on how to treat marijuana-related issues as they pertain to matters of the real estate industry. Several key aspects of the CARERS Act would presumably make it easier for those in the real estate industry to comply with state statutes without putting themselves at risk for federal prosecution. The CARERS Act would amend the Controlled Substances Act to allow states to create their own medical marijuana policies and protect businesses, providers and patients from federal prosecution in those states where medical marijuana is legal. Additionally, the CARERS Act would downgrade marijuana to a Schedule II substance, meaning accepted medical use would be recognized. It would also remove specific strains of cannabis oil from the federal definition of marijuana, thus declassifying them altogether and enabling states to import cannabidiol (CBD), which has been used to treat epilepsy and other seizure disorders.

The CARERS Act also includes a comprehensive section that pertains to banking. If enacted into law, the CARERS Act would allow credit unions and banks to offer financial services without fear of federal reprisals to dispensaries and marijuana-related businesses whose activities are pursuant to state laws. It specifically addresses one issue that is of serious concern to the real estate industry, stating that a federal banking regulator would not be permitted to “take any adverse or corrective supervisory action on a loan to an owner or operator of real estate or equipment that is leased to a marijuana-related legitimate business solely because the owner or operator of the real estate or equipment leased the real estate or equipment to a marijuana-related business.”

As of press time, the CARERS Act has been referred to the Senate's Committee on the Judiciary and the House's Subcommittee on Health. It has also gained momentum in both chambers of Congress, with two more senators and seven more representatives signing on as co-sponsors.

Meanwhile, what should property owners, developers and others do to minimize the risks? Can a multifamily owner/operator adopt a bright line rule against marijuana use on its properties? It is certainly advisable to have a clear and unambiguous policy regarding marijuana smoking on properties where its use might be allowed under the state law. However, what that policy actually should be depends on multiple and unclear factors.

One might argue that “the safest course is to prohibit all marijuana. Amendment 64 explicitly gave property owners (in Colorado) the right to exclude marijuana from their premises. Landlords can put in the lease that a tenant not possess marijuana, not grow marijuana, not smoke marijuana and that would be permissible. It is essential that landlords have a clear understanding of the laws regarding marijuana in the states where they own property, as regulations can drastically differ.

As stated by Alex Kreit, a law professor at the Thomas Jefferson School of Law in California and author of the book Controlled Substances: Crime, Regulation, and Policy, “I think it is a state-by-state question of whether there are any potential discrimination-type protections that might apply to medical marijuana patients.” Continuing he explained, “In a state with explicit protection, there is the further question of 'do you have to accommodate everything this patient wants to do or would it be enough to say they have to consume the medicine in the form of an edible product?' And if so, are you discriminating by treating consumers differently in allowing exceptions to the lease limitations and compounding your potential liability?”

For landlords and building managers dealing with complaints from tenants regarding pot smoke, stepping in as quickly as possible to work out a solution may be the best course of action to avoid an escalation of the situation.

“My take is that it is probably not that dissimilar in many ways from any other kind of landlord/tenant dispute,” explained Kreit. “At the end of the day, I imagine that to the extent it is at all possible, you're probably better off trying to resolve the issue without it becoming some sort of a legal process.”

Though the enactment of this new bill into law would provide much-needed clarity to the real estate industry on marijuana-related matters, it is best to tread carefully until any decision is made at the federal level. Two recent lawsuits filed by plaintiffs in Colorado, for example, have pitted various parties within the real estate industry against each other. In the first case, two property owners (along with the anti-crime advocacy organization Safe Streets) have brought suit against a number of defendants that range from a developer to a construction company. Two of the plaintiffs involved in the case own lots adjacent to a marijuana-growing facility in Rye, Colorado. They allege that the defendants have violated the federal Racketeer Influenced and Corrupt Organizations Act by forming a racketeering ring for the cultivation of marijuana. The second case, which has been filed by Safe Streets and the owner of a Holiday Inn in Frisco, Colorado, also cites racketeering allegations. The defendants in this lawsuit include a real estate management company, a lender and a construction contractor, as well as a limited liability corporation that plans to open a marijuana cultivation facility and retail shop across from the plaintiff's hotel.

As the aforementioned cases illustrate, those in the real estate industry will continue to get caught in the crossfire between federal regulations and state laws until the CARERS Act or similar legislation is enacted.

While the simplest resolution might be for the Federal Government to act and revise the schedule I regulation for marijuana, we're still uncertain where this will go. Until we know, owners and managers must choose their paths carefully and with an understanding of the risks and rewards of proceeding down a path. The following is a list of preliminary do's and don'ts to start limiting your liability.

Do's:

-Do review your leases and other related residential contracts to ensure you are in compliance with both federal and state laws.

-Do conduct in-depth research on marijuana-related legislation and prior cases in your state to ensure you are following proper protocol.

-Do implement clear policies regarding marijuana use on your properties.

-Do investigate how renting to legal marijuana users may affect your loan compliance obligations.

-Do recognize that you have potential fair housing obligations to tenants who may be affected by smoke.

-Do review any smoke-free policies to see what effect they have on medical marijuana users.

-Do consider asking tenants who are medical marijuana smokers if they could use a different form of the drug (such as edibles or tinctures) or use fans to alleviate secondhand smoke issues, provided that you are not in violation of any other state law.

-Do stay abreast of new developments regarding marijuana regulations in states and districts where you own property.

Don'ts:

-Don't stall when it comes to resolving tenant disputes over secondhand marijuana smoke.

-Don't refuse to make reasonable accommodations for residents with disabilities who are being affected by marijuana smoke.

-Don't ask current or potential tenants about their medical marijuana status, as doing so may violate HIPAA laws and other privacy rights.

-Don't assume that medical marijuana users are a protected class under Federal Fair Housing laws, as United States v. Southern Management Corp. established that substance users (i.e., marijuana smokers) are actually excluded from protection.

- Don't assume that medical marijuana users are not a protected class under State Fair Housing laws, such as Unruh.

-Don't fail to enforce any smoke-free policies you have implemented.