Guide · Landlords, owners and their counsel
Cannabis lease clauses landlords miss
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The short answer
A cannabis lease on an industrial form leaves a landlord exposed on six fronts: regulatory compliance allocation, licence ownership, restricted-access rules that conflict with landlord entry, remedies that can destroy the licence, cannabis-excluded insurance, and restoration of grow improvements at surrender.
Most cannabis leases we are asked to review are industrial forms with the word cannabis inserted in the use clause. That document protects the landlord until the moment something goes wrong, at which point almost every standard remedy is either unavailable or self-defeating.
The clauses below are the ones that actually matter from the ownership side. This is a commercial guide, not legal advice — every one of these needs drafting by counsel who practises in Michigan cannabis.
Step 1 of 6
Allocate regulatory compliance and change in law explicitly
State which party bears the cost of compliance with existing rules and with changes in law, including tax changes, and do not leave it to a generic compliance-with-laws clause.
A generic compliance-with-laws clause was written for building codes, not for a regulatory regime that changes annually. Cannabis rules change in ways that impose real capital cost — security requirements, odour control, tracking, packaging, waste disposal — and the lease should say who pays for each category.
Change in law also reaches economics. Michigan's 24% wholesale tax took effect 1 January 2026 on top of the existing 10% excise and 6% sales tax, and it compresses cultivation margin directly. A landlord who did not consider tax change in the lease has no contractual position when a tenant asks to restructure — and, realistically, restructure requests are the likely outcome for Class C cultivation tenants.
Say explicitly whether a change in law that makes the tenant's operation unlawful is a termination event, a rent-abatement event or neither. Silence here produces litigation.
Step 2 of 6
State that the licence is the tenant's, and control what happens to it
Confirm the licence does not run with the land, and address assignment, change of control, surrender and what happens to the licence on default.
A Michigan licence attaches to the licensee at a specified address, not to the property. A landlord does not inherit a licence when a tenant leaves, and any lease language suggesting otherwise is both wrong and dangerous to rely on.
What the landlord can control is the transition. Require notice of any application, change of control, or enforcement action. Require cooperation in a licence transfer to a replacement tenant on surrender or default, since the licence position and the municipal relationship are frequently worth more than the building.
Consider whether the municipality's cap means the tenant's licence is effectively the last one available in that jurisdiction. If it is, losing it does not just cost you a tenant — it costs you the entire cannabis value of the asset, and the lease should be drafted with that at stake.
Step 3 of 6
Reconcile landlord access with restricted-access rules
Regulatory restrictions on who may enter a licensed area conflict with standard landlord entry rights; draft an access protocol rather than relying on the standard clause.
Licensed premises have restricted areas with rules about who may enter, escort requirements and visitor logging. A standard clause letting the landlord and its agents enter at reasonable times on reasonable notice cannot be exercised as written without putting the tenant out of compliance.
Draft a protocol: notice period, escort requirement, logging, categories of permitted visitor including lenders and prospective purchasers, and a carve-out for genuine emergencies. Include appraisers and inspectors explicitly — a refinancing that cannot be appraised is a real problem.
Address surveillance too. Camera coverage and retention are regulatory obligations for the tenant, and ownership of the system at surrender should be stated rather than assumed.
Step 4 of 6
Rewrite the remedies
Self-help, lockout and distraint can violate state rules and destroy the licence that makes the building valuable. A receivership pathway usually protects the landlord better.
The conventional landlord toolkit is largely unusable here. Locking out a licensed cannabis tenant can put the landlord in possession of regulated product it is not licensed to hold, can trigger enforcement against the tenant's licence, and can destroy the going-concern value the landlord was hoping to capture.
The better mechanism is a contractual pathway to receivership: the tenant consents in advance to the appointment of a receiver on specified defaults, the receiver operates under court authority, and the licence position survives long enough to be transferred to a replacement operator. Michigan courts appoint receivers over cannabis operations — the TerrAscend Michigan estate entered receivership on 6 May 2026 — and it is a functioning path.
Pair it with a landlord notice-and-cure right on the tenant's regulatory defaults, so the landlord learns about a licence problem while it is still curable rather than at revocation.
Step 5 of 6
Get insurance that names cannabis operations
Standard property and liability forms frequently exclude cannabis. Specify carriers' acceptance of the use, name the landlord and lender, and confirm coverage annually.
Many standard property and general liability forms exclude cannabis operations outright, which means a tenant can deliver a certificate that looks compliant and provides no coverage for the actual use. Require that the policy expressly cover cannabis operations at the premises and require the policy, not just the certificate.
Confirm the landlord's own coverage as well. A landlord's property policy may exclude the tenant's use or may be voided by it, and the mortgage almost certainly has representations about permitted uses that need to be reconciled before the lease is signed.
Set an annual confirmation obligation. The cannabis insurance market moves, and a policy that covered the use at signing may not at renewal.
Step 6 of 6
Decide restoration and surrender before build-out
Grow improvements are expensive to install and expensive to remove. Decide at signing which improvements stay, which come out, and who holds the security for it.
Cultivation build-out is heavily specialised — sealed rooms, vapour barriers, process drainage, oversized electrical distribution, dehumidification. Some of it is valuable to the next cannabis tenant and worthless to a conventional industrial tenant, and some of it actively reduces the building's appeal.
Decide at signing, improvement by improvement, what stays and what is removed, and secure the removal obligation with a deposit or letter of credit sized to the actual cost. A restoration obligation against a defaulted tenant with no security is worth nothing, and the TerrAscend estate's $6.8 million in Michigan payables against $5.2 million in assets is what that looks like in practice.
The upside case is worth holding onto: with the cannabis bid thinner than it was, former cultivation buildings with heavy power and upgraded HVAC are trading as some of the better conventional industrial values in Michigan. Which improvements you keep determines which market you can sell into.
Ranges and rules of thumb in this step reflect C3 CRE's Michigan transaction experience, not a published dataset.
Comparison
Standard industrial clause vs cannabis-specific drafting
| Clause | Standard industrial form | What a cannabis lease needs |
|---|---|---|
| Compliance with laws | Generic tenant obligation | Category-by-category allocation plus an express change-in-law mechanism covering tax |
| Use | Permitted use description | Licence-specific use tied to the licence class and the municipal authorisation |
| Landlord entry | Reasonable notice, reasonable times | Access protocol with escort, logging and named visitor categories |
| Default remedies | Self-help, lockout, distraint | Consent to receivership; no lockout; landlord cure rights on regulatory default |
| Insurance | Standard property and liability | Policies expressly covering cannabis operations, confirmed annually |
| Surrender | Remove trade fixtures | Improvement-by-improvement schedule, secured by deposit or letter of credit |
Comparison reflects C3 CRE's review of Michigan cannabis lease documents in the course of transactions; it is a commercial summary, not legal advice.
Avoid these
Where these deals go wrong
- Assuming the licence is an asset of the building
- It is not. The licence attaches to the licensee at a specified address, and a landlord recovers value from it only through a cooperative transfer or a receivership.
- Relying on a lockout
- A lockout can put an unlicensed landlord in possession of regulated product and can destroy the tenant's licence. Consent-to-receivership is the workable substitute.
- Accepting a certificate of insurance at face value
- Many standard forms exclude cannabis outright. Require the policy and require express coverage of cannabis operations at the premises.
Questions
Cannabis lease clauses landlords miss — questions we get asked
- Can a landlord evict a cannabis tenant in Michigan?
- A landlord can pursue eviction, but conventional self-help remedies are dangerous: a lockout can place an unlicensed landlord in possession of regulated product and can destroy the tenant's licence. A consent-to-receivership provision is generally the better-protected path.
- Does a cannabis licence transfer with the building?
- No. A Michigan licence attaches to the licensee at a specified address, not to the real estate. A landlord captures licence value only through a negotiated transfer to a replacement operator, which is why cooperation obligations belong in the lease.
- Should a landlord require cannabis-specific insurance?
- Yes. Many standard property and liability forms exclude cannabis operations, so a compliant-looking certificate can provide no coverage. Require the policy itself, require express coverage of cannabis operations at the premises, and re-confirm annually.
Sources
Sources and controlling authority
- Michigan Cannabis Regulatory Agency — administrative rules and licensing guidance · figures as of
- Michigan Regulation and Taxation of Marihuana Act (MRTMA), Initiated Law 1 of 2018 · figures as of
This is a commercial guide, not legal advice. Ordinances and administrative rules change; verify the current text with the municipality and the Cannabis Regulatory Agency, and have documents drafted by counsel who practises in Michigan cannabis.
Related
Go deeper on this site
Other guides
- How to lease a cannabis cultivation facility in Michigan
- Cannabis buffer zones and setbacks in Michigan, explained
- Site selection for a Michigan provisioning center
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