Adam D. Martinez | Chairman of Real Estate Litigation Department
Question: My company owns and operates a medical marijuana dispensary in Maricopa County. Prior to applying for a license to operate as s medical marijuana dispensary, we entered a commercial lease. At the time our landlord knew what our business was and we had a very good relationship. After we obtained our license, and for a number of unrelated reasons, we had a falling out with our landlord. Recently, our landlord has told us that even though Arizona law allows medical marijuana dispensaries to operate, marijuana is still prohibited under federal law as a controlled substance and, as a result, our lease is invalid because contracts for an illegal activity are invalid. I am aware that contracts for illegal activities are not valid, but I am not clear one whether Arizona or federal law governs our lease.
Answer: The landlord cannot likely terminate the lease. While it is true that a contract for an illegal activity is not enforceable, the Arizona Medical Marijuana Act (AMMA) expressly permits dispensaries to enter into leases provided that they comply with the AMMA. And while there is unresolved tension between the AMMA and the federal Controlled Substances Act (CSA) (which still criminalizes the sale of medical marijuana), federal policy on medical marijuana authorized by states is in a state of flux. As a result, Arizona courts will uphold the immunity given to dispensaries under the AMMA and enforce dispensary leases.
As one appellate judge said recently, “If the federal government wishes to end [the AMMA] by enforcing the CSA, it has the power to do so provided Congress permits the use of federal funds to conduct such prosecutions and the Department of Justice desires to bring such actions.” Green Cross Medical, Inc. v. Gally, 1 CA-CV 16-0019 (Apr. 2017). Therefore, provided that there is compliance with the AMMA, you should be able to enforce the lease.