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As Feds Crack Down, Lenders Cutting Pot Shop Buildings Loose

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In May, LA voters will have a choice of three initiatives regulating marijuana dispensaries. But in the meantime the war on pot shops has a new front: banks are now getting in on the action. According to the Los Angeles Business Journal (sub. req.), banks that hold the mortgages on the buildings that house dispensaries are now suing borrowers for breach of contract. By leasing to the dispensaries, the thinking goes, the borrower is breaking federal law and therefore in breach of contract. Its on these ground that Wells Fargo is now suing a borrower who leased to two shops in Sherman Oaks and Woodland Hills. And why are the banks being so uptight all of a sudden? Blame the Feds.

Under asset forfeiture laws, federal authorities have the power to seize any property at marijuana dispensaries. So even though the federal government isn't directly pressuring banks like Wells Fargo to cut ties with their dispensary tenants, the banks are motivated to do so to protect their loans, lest they be pulled into property seizure proceedings, as has happened to "several" banks. "Such cases of pre-emptive action are rare but could become more common as the U.S. Attorney's Office in Los Angeles continues to target pot shops."

The US Attorney leading the crackdown on LA's pot shops confirms that his office doesn't require banks to take action but that "when banks are engaged in litigation with us, they usually start working in-house to make sure they have no other problems with the U.S. government."
· Pot Shop Deals Up in Smoke? [LABJ, sub. req.]
· Marijuana Dispensaries [Curbed LA]