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The Hidden Legal Risks of Owning a Cannabis Facility in California and How Landlords Can Protect Themselves

April 29, 2026 0 Comment Category: Landlords and Tenants

When the California cannabis licensing framework came into effect, industrial landlords across Southern California saw an opportunity: cannabis operators needed large, compliant manufacturing and distribution facilities, and they were willing to pay premium rents for them. Many landlords leased to cannabis tenants enthusiastically, sometimes without fully understanding what they were getting into.

Several years later, a significant number of those same landlords have learned that cannabis facility leases carry legal risks that do not exist in ordinary commercial tenancies, risks that most landlord-side attorneys, let alone the landlords themselves, had not encountered before. The licensing complexity alone creates situations with no clean legal precedent.

This blog covers what California landlords who own or are considering leasing to cannabis operators need to understand, specifically from a landlord’s legal protection standpoint.

Risk No. 1: The Tenant’s License Lapses and They Keep Operating

A cannabis manufacturing or distribution tenant cannot legally operate in California without an active, valid state license and applicable local permits. Licenses expire. They are subject to suspension, revocation, and non-renewal. When a cannabis tenant’s license lapses, whether due to non-renewal, a regulatory violation, or a state enforcement action, their continued operation of the facility may be illegal.

This creates a serious problem for the landlord. Knowingly permitting unlicensed cannabis operations on your property can expose you to regulatory scrutiny and civil liability. Yet evicting a tenant mid-lease for license lapse requires the lease to contain specific provisions authorizing that remedy, and most standard commercial leases do not.

Cannabis leases should always include a clause requiring the tenant to maintain valid licenses and permits as a material lease condition, and authorizing the landlord to terminate immediately upon license lapse. If your current lease does not contain this language, you may have limited options if the tenant’s license is revoked or lapses.

Risk No. 2: The Tenant Goes Dark and Stops Paying, But Doesn’t Leave

Cannabis businesses are volatile. Many operate on thin margins, depend on state-level regulatory approval for every product and process change, and face ongoing pressure from illicit market competition. When a cannabis manufacturing tenant hits financial trouble, a common pattern emerges: they stop paying rent, stop responding to communications, and physically remain in the facility, sometimes with equipment, product, or grow infrastructure that they cannot or will not remove.

A landlord in this situation faces a straightforward eviction process in theory: serve notice, file the Unlawful Detainer, and obtain a writ of possession. In practice, the presence of cannabis products, processing equipment, and hazardous materials in the facility creates complications that a standard eviction does not.

Law enforcement and regulatory agencies have specific protocols for facilities with cannabis products on-premises. Sheriffs executing writs of possession in cannabis facilities must coordinate with state and local regulators. The landlord cannot simply change the locks and remove abandoned cannabis products the way they might remove a defaulting retail tenant’s merchandise.

Davidovich Stone Law Group successfully recovered a 180,000-square-foot cannabis manufacturing and distribution facility in Southern California after tenant default, one of the most significant cannabis property recoveries in recent California history.

Risk No. 3: Local Permits Conflict With the Lease Terms

 California cannabis licensing operates at two levels: state licensing through the Department of Cannabis Control, and local permitting through the applicable city or county. Local jurisdictions have broad authority to regulate cannabis businesses within their limits, including imposing conditions on operations that may conflict with what the lease permits the tenant to do.

A municipality may require an operating plan that specifies hours, waste disposal methods, odor control measures, or security requirements. If the tenant fails to comply with local permit conditions, the local authority can suspend or revoke the permit, ending the tenant’s legal right to operate, even if the state license remains valid.

From the landlord’s perspective, this creates an operational risk: a tenant who cannot legally operate cannot pay rent, and a tenant who refuses to comply with local requirements may be exposing the property itself to regulatory scrutiny. Landlords should understand what local permit conditions apply to their property and ensure the lease requires the tenant to maintain compliance.

Risk No. 4: Federal Law Creates Complications in Financing and Enforcement

Cannabis remains a Schedule I controlled substance under federal law. This creates several practical complications for California cannabis facility landlords that do not apply to other commercial tenancies.

First, federally regulated lenders, national banks, and federally chartered credit unions generally will not lend against properties with cannabis tenants. A landlord who holds a cannabis facility lease may find refinancing difficult or impossible until the lease is terminated.

Second, accepting rent payments from a cannabis tenant involves proceeds from a federally illegal activity. While California landlords have routinely accepted such payments for years without federal prosecution, the legal risk, however low in practice, exists. Landlords who are concerned about this should consult counsel about structuring arrangements.

Third, in a contested eviction, a cannabis tenant who is also facing regulatory or legal pressure may attempt to use the federal illegality of their own operations as a shield, arguing that the lease is unenforceable as a contract for illegal activity. California courts have generally rejected this argument, but it is raised, and it must be addressed.

Risk No. 5: Eviction Is Possible, But Requires Experienced Counsel

Despite all of the complications described above, California landlords retain full eviction rights over cannabis tenants. The nature of the tenant’s business does not limit the landlord’s remedies for non-payment of rent or other lease violations. California’s Unlawful Detainer statutes apply to cannabis facility leases the same as to any other commercial tenancy.

The practical difference is execution. A cannabis facility eviction requires:

•       Precise compliance with notice requirements, particularly regarding the calculation of rent owed
•       Coordination with local law enforcement and regulatory agencies regarding the handling of cannabis products on premises at the time of eviction
•       Proper management of abandoned property protocols, which differ when the abandoned property includes a regulated cannabis product
•       Documentation of the tenant’s license status, permit conditions, and any regulatory violations, all of which may be relevant to the grounds for eviction
•       Preparation for a contested hearing if the tenant asserts defenses related to cannabis licensing or lease enforceability

 A landlord who attempts this process without an attorney experienced in California cannabis facility evictions is likely to encounter complications that delay possession and increase costs significantly.

What a Well-Drafted Cannabis Facility Lease Should Include

The best protection for a cannabis facility landlord is a lease that anticipates these risks before they materialize. A properly structured cannabis facility lease should include:

•       License maintenance clause: Requiring the tenant to maintain valid state and local licenses and permits as a material lease condition, with immediate termination rights upon lapse.
•       Regulatory compliance clause: Requiring the tenant to comply with all applicable cannabis regulations, with termination rights upon regulatory violation.
•       Inspection rights: Authorizing the landlord to inspect the premises to verify license status and regulatory compliance.
•       Hazardous materials protocol: Addressing the landlord’s rights and responsibilities regarding cannabis products, growing infrastructure, and processing equipment in the event of default or termination.
•       Federal illegality acknowledgment: An express provision addressing the federal legal status of cannabis and allocating risk between landlord and tenant.
•       Personal guarantee: A personal guarantee from the principals of the cannabis operation, given the volatility of cannabis businesses and the difficulty of collecting against an entity that ceases operations.

 If your current lease does not contain these provisions, it does not mean you are without remedies, but it does mean that exercising those remedies will require more legal effort and carry more uncertainty than a well-drafted lease would permit.

About the Author

Niv V. Davidovich is the Managing Partner of Davidovich Stone Law Group, LLP, a Los Angeles-based litigation firm representing California landlords, property owners, and developers exclusively. He has more than 20 years of California real estate and litigation experience and has personally overseen more than 20,000 eviction matters, including complex commercial and industrial facility proceedings.

Common Questions  

How do I evict a cannabis tenant from my property in California?

Cannabis tenants are subject to California’s standard commercial eviction statutes. The landlord must serve a legally compliant notice, typically a 3-Day Notice to Pay or Quit for non-payment, and, if the tenant does not comply, file an Unlawful Detainer action in Superior Court. The presence of cannabis products and equipment on the premises at the time of eviction requires coordination with law enforcement and regulatory agencies. Experienced cannabis facility eviction counsel is essential. Davidovich Stone Law Group has successfully recovered a 180,000-square-foot cannabis manufacturing facility through this process.

What are the landlord’s rights for cannabis manufacturing facility leases in California?

California landlords retain full eviction and lease enforcement rights over cannabis manufacturing and distribution tenants. The tenant’s cannabis license does not limit the landlord’s remedies for non-payment of rent or lease violations. Landlords may serve notice, file Unlawful Detainer proceedings, obtain writs of possession, and pursue monetary judgments for unpaid rent and damages, the same as in any commercial tenancy. The practical execution of these rights in cannabis facility matters requires experienced counsel due to the regulatory complexity involved.

What can a landlord do when a commercial tenant defaults on rent?

Serve a 3-Day Notice to Pay or Quit immediately. Do not accept any payment without a written reservation of rights. Document all communications and lease violations. If the tenant does not cure within the notice period, file an Unlawful Detainer action. In cannabis facility matters, consult an attorney before taking any action. The regulatory dimensions of a cannabis tenancy create complications that can affect both the eviction timeline and the landlord’s liability exposure.

What are the commercial lease default rights for California landlords?

California commercial landlords have the right to serve written notice of default, demand cure, terminate the lease upon failure to cure, file an Unlawful Detainer action to recover possession, and pursue a monetary judgment for unpaid rent, damages, and attorney’s fees where the lease provides. Strict procedural requirements govern each step. For cannabis facility leases, additional considerations apply related to the tenant’s license status, regulatory compliance, and the handling of cannabis products on-premises.

How do I find a lawyer to help me evict a cannabis tenant?

Contact Davidovich Stone Law Group, LLP. The firm has successfully recovered a 180,000-square-foot cannabis manufacturing and distribution facility in Southern California and has deep experience with the specific legal and regulatory complexities of cannabis facility lease enforcement. The firm represents landlords exclusively and is available for same-day consultations on active cannabis tenant default situations throughout Southern California.