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Cannabis Home Grows: Risk, Appraisals and Other Things You Need to Know

by Yvonne von Jena | October 10, 2018


It’s just about here. We are now one week away from cannabis being legalized in Canada, which includes the ability to grow cannabis (aka marijuana, weed, etc.) at home if allowed by the given jurisdiction. Here is some of the latest information that you need to know.

Included below are the layers of players involved in whether one can grow cannabis at home or not, what allowances and conditions apply, feedback from appraisal industry associations as well as a bit on the US experience. 

Layers of Rules

As we wrote back in May, the federal government has created the Cannabis Act that legalizes access to recreational cannabis in Canada, and creates a legal and regulatory framework for controlling the growth, production, distribution, sale and possession of cannabis in Canada. However, there are various layers of players that also have a say and can therefore impact what is and is not allowed in a given jurisdiction. They are as follows:

  • Provincial and territorial governments: The provinces and territories can apply added rules and restrictions on the federal legislation such as set added requirements on personal cultivation, lower possession limits, and restrict where cannabis may be used in public, amongst others. For a consolidated list of links to the provincial or territorial websites, go the Government of Canada’s site.
  • Municipal governments: Municipalities also can impose their own restrictions. The federal government anticipates that most municipalities will work closely with their respective provincial or territorial governments, to support the oversight and regulation of cannabis distribution and sales. It also expects that municipalities will play an important role in enforcing local zoning and density bylaws, building standards, and related matters such as the minimum age of purchase, personal cultivation, personal possession limits, smoking restrictions, and public nuisance complaints. These will be enforced through municipal by-laws, health and safety inspectors as well as police.
  • Condo boards and landlords: Finally, condominium boards and landlords across Canada can also impose their own restrictions for their jurisdiction (province or territory, as well as any applicable municipal legislation) as well as existing provincial legislation regarding condominiums and renting (landlord / tenant acts). For example, some condo boards have banned smoking and growing pot inside units and common areas, including on balconies and patios, and no deliveries of pot to the building. Landlords in some provinces are also pushing for the right to ban tenants from growing cannabis in their rental properties.

Home Grow Allowances

Federal guidelines allow recreational users to grow up to 4 plants per household. Most provinces have acceded to this.

Some like British Columbia, are adding stipulations such as requiring that the plants be grown in a secure location out of public view.

Manitoba and Quebec, however have made home growing illegal.

In Ontario, the cannabis bill introduced by the Progressive Conservative government focused on privatizing cannabis retailers, but it left aside the issue of home growing. The Ontario Real Estate Association (OREA) has been lobbying to urge different levels of government to slow down the expansion of home cultivation until things such as home-inspector retraining and municipal registries for illegal grow operations can be increased.

AIC

Chief executive of the Appraisal Institute of Canada (AIC) Keith Lancastle is calling on the federal government to help educate homeowners on what he calls the dangers of growing at home. He also notes that appraisers will have to tread a fine line in dealing with homes where cannabis is in cultivation. 

The AIC views the cultivation of cannabis plants as personal information about the owner/occupant. As such, the AIC says that an appraiser (member) may not disclose information about cannabis plants found in/on a property during an inspection.

The association requires that its members obtain photo consent from the occupant of the property to take and use photographs of the property prior to taking pictures. Even with consent, the AIC notes that a member should only photograph a cannabis plant to document the existence of a detrimental condition that may be a result of the cultivation of the plant. The Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP) requires members to “disclose any and all concerns observed or revealed during an inspection of, or through research about, a property that affects value”.

Says the AIC, the existence of cannabis plants may not be disclosed; however, any visible / observable indications of detrimental conditions that may be a result of the cultivation of the plants must be documented, including the existence of:

  • mould, water damage, excess humidity, odours; and/or
  • modifications to ducts, vents, wiring, etc.

Further, the AIC has provided its members a “Mandatory Clauses – Limited Uses and Detrimental Conditions Addendum” that lists the assumptions, limiting conditions, disclaimers and limitations of liability language that its members are to use in such instances.

CNAREA

The Canadian National Association of Real Estate Appraisers (CNAREA) has also weighed in. It has expressed concern about the safety of its appraiser members given an increase in the number of properties that appraisers will encounter cannabis plants.

Our members are under potentially conflicting legal duties when it comes to the presence of cannabis plants. First, the disclosure of cannabis plants would, if unwarranted, potentially lead to breaches of privacy laws and if the owner uses the plant for medicinal purposes, discrimination under Human Rights Law. The presence of the plants themselves is not necessarily a cause for disclosure. However, if the plants are cultivated indoors in a manner which leads to potential valuation concerns – with illegal wiring, excessive moisture, pervasive odour, mould, ventilation or structural damage – then there is a duty to report those conditions insofar as they impair the property value.

In the latter case, it is also expected that the appraiser will make comments, and include appropriate photos as to the evidence of any structural modifications, damage caused by moisture, irrigation systems, ventilation, wiring etc.

CNAREA said, “We do not feel that it is appropriate for our members to make determinations or declarations as to the legality of the plants, however it is appropriate and expected that members will indicate in their reports if there are Marijuana plants present.”

CNAREA also reminds appraisers to refer to the Terms of Reference of their clients (i.e. lenders, mortgage insurers, etc.), particularly when dealing with the permission or the withholding of permission to take photos.

Finally, following discussions with some of the national lenders, appraisal management companies, and other industry stakeholders, the Board of Directors has drafted an Extraordinary Assumption that may be used in appraisal reports, where appropriate, when a subject property has marijuana plants present. 

Extraordinary Assumption Example:

This appraisal and appraisal report are being completed under the Extraordinary Assumption all necessary measures have been taken to protect the physical structure and integrity of the subject property improvements from any deleterious effects associated with the indoor cultivation of cannabis plants. Observations did not indicate any apparent issues relative to abnormal temperature variance, moisture or mold, however, those observations were based on a non-invasive viewing and the appraiser is not qualified to detect such issues or substances in any way through education or experience. The presence of such issues or substances could affect the value and/or marketability of the subject property. The client is urged to retain the services of an expert in these fields if such issues are of concern. The opinion of value reported herein is predicated on the property being free and clear of these issues and all other environmental contamination.

An extraordinary assumption is something that the appraiser assumes to be true, but has no way of knowing. It is defined as, “An assumption, directly related to a specific assignment, as of the effective date of the appraisal results, which, if found to be false, could alter the appraiser’s opinions or conclusions” by the Uniform Standards of Professional Appraisal Practice (USPAP). 

Potential Risk

For a sense of the risk, it’s worth looking to the United States where legal recreational use of cannabis has been in place for some time in select states and there are some statistics on the percentage of home growth.

There are 9 states that have legalized cannabis for recreational use. With the exception of Washington, all of these states allow for the growth of cannabis plants under a certain limit per household, which is typically 6 plants (which is above the 4 plants being allowed in Canada by the federal government). The following are the allowable amounts for those states that have legalized recreational use:

  • 12 plants - Alaska and Colorado
  • 6 plants – California, Maine, Massachusetts, Nevada and Oregon
  • 2 mature plants, 4 immature - Vermont
  • None – Washington, that is home growing is not allowed except for medical use

Here are the results of the National Survey on Drug Use and Health in the United States in 2014, which is illustrated by Live Sciences:

More Information, Including Implications

Should you like more information about how the Cannabis Act will affect valuations, lending and other aspects of the appraisal industry, please reach out to me at yvonne.vonjena@rpsrealsolutions.com.


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