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Green Cross Medical, Inc. v. Gally - 4/18/2017

Arizona Court of Appeals Division One holds that a lease for a medical marijuana dispensary is not void for illegality.

A company looking to open a medical marijuana dispensary entered into a commercial lease with a property owner.  The property owner attempted to revoke the lease and the prospective dispensary sued to enforce it.  On summary judgment, the trial court held that the lease was void for illegality because the purpose of the lease violated federal and state law.  The dispensary appealed.  

The Court of Appeals held that the purpose of the lease was not illegal under Arizona law.  The Arizona Medical Marijuana Act (“AMMA”) guarantees that dispensaries “may not be denied any right or privilege . . . by a court.”  A.R.S. § 36-2811(E) (2010).  The ability to make and enforce contracts is such a right or privileged under Arizona law.  Securing a facility is a requirement before dispensaries may operate.  Although the AMMA does not explicitly grant immunity to landlords, the court would not interpret the AMMA in a way that allows the absurd result of exposing landlords to prosecution.  The landlord also could not be subject to accomplice, conspiracy, or facilitation liability because there is no underlying crime under the AMMA.  Although landlords are not required to lease to dispensaries, they will be bound by a lease if they enter into one.

Under Federal law, it is illegal to both sell marijuana for medical purposes and to lease property knowing it would be used to distribute controlled substances.  The Court of Appeals, however, concluded that leases for medical marijuana dispensaries are enforceable despite their federally illegal purpose.  In general, illegal contracts are void.  The rule for voiding illegal contracts in Arizona is flexible and involves an examination of various factors.  Here, the court found that the federal government’s policy on enforcing marijuana statutes is in flux and currently forbids any interference with state medical marijuana laws.  Arizona’s public policy in the AMMA is in favor of such leases.  Voiding such leases would create an unconscionable windfall and undermine the sanctity of contracts.  Finally, there is no question of moral responsibility as both parties knew the purpose of the lease when it was signed. 

Judge Kessler authored opinion; Presiding Judge Swann and Judge Cattani concurred.

Posted By: Brian K. Mosley 

Posted On: 5/2/2017