Commentary: Legal-Illegal Marijuana and Construction

Caution!

Webster defines conundrum as “a confusing and difficult problem or question.”

That is what construction contractors, design professionals, subcontractors and suppliers may face if or when they do work, supply materials or provide designs for businesses engaged in the cultivation, distribution and/or sale of marijuana in Colorado.

Although Colorado now has laws legalizing marijuana under defined conditions, marijuana is a “controlled substance” under federal law and therefore its manufacture, distribution and possession is illegal.

So what does that have to do with the Colorado construction industry?  There’s no easy answer.

Recently, a federal bankruptcy court judge in Denver ruled that a landlord who had leased property to a company that the landlord knew was in the business of growing marijuana may be denied rights under bankruptcy laws because it had rented space to a business that was violating federal laws. The judge ruled that the landlord did not have “clean hands.” As a result, the judge suggested that the landlord could be denied protection under the bankruptcy laws.

So if you are a design professional, contractor, subcontractor or supplier involved in a project owned by a marijuana-growing or marijuana-related business, you may have a problem because of federal anti-marijuana laws.

As I see it, the main problem may be with respect to your ability to get paid for your work, materials or services. That’s because if the feds crack down on the project owner, it may not have the ability to pay. Also, under federal law, the government may forfeit (take) property used for the conduct of illegal activities.  That could conceivably render mechanics’ lien rights worthless.

I doubt that a Colorado judge or Colorado appellate court would rule that a business that provides labor, services or materials to a business engaged in marijuana trade that is lawful under Colorado law would deny payment or other relief to construction people. Nevertheless, the risk is there and should be considered by professionals and businesses when they contract with those engaged in marijuana businesses.

Those doing business directly with marijuana-related companies should also consider other ramifications such as the fact, recently reported, that banks are refusing to handle marijuana business accounts. If that is the case, there may be complications if payment for construction services or materials is made in cash.

The bottom line: If you're going to do business with someone engaged in the marijuana trade, study the consequences carefully and take whatever precautions may be appropriate.

Albert B. Wolf is a principal in the Denver law firm of Wolf Slatkin & Madison PC.