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Fidelity National Title Group, a subsidiary of Fidelity National Financial, the largest title insurer in the world, has issued an underwriting bulletin to its agents in 28 states to not insure any land used “for the production or distribution of marijuana.”

According to the memo issued June 29, 2017 by Fidelity National Title, the company’s Chief Underwriting Counsel said that properties in the 28 states “that have in some capacity legalized cultivation, distribution, manufacture or sale of marijuana products” will not be insured by Fidelity.

The bulletin instructs its agents and people in company operations to include the following language in every title commitment that the company issues in the 28 states. This underwriting bulletin (coded as Fidelity National Title Insurance bulletin 2017 RC-05) states:

“Please be aware that due to the conflict between federal and state laws concerning the cultivation, distribution, manufacture or sale of marijuana, the Company (Fidelity) is not able to close or insure any transaction involving Land that is associated with these activities.”

On its web site, Fidelity National Financial describes itself as “the nation’s largest title insurance company through its title insurance underwriters – Fidelity National Title, Chicago Title, Commonwealth Land Title, Alamo Title and National Title of New York – that collectively issue more title insurance policies than any other title company in the United States.”

The bulletin recommends that if a title company sends out a “welcome” package or instructions before closing that it should include a similar statement saying the land will not insured.  The bulletin also says “the sooner we indicate our unwillingness to insure, the better all around.”

In effect, the bulletin can affect the purchase and sale of undeveloped land, commercial properties, retail stores, and houses, where marijuana has been used even in states where it is legal. In effect, the bulletin and denial of title insurance means that many properties will not be financeable in a real estate transaction.

When a commitment letter is sent to a purchaser, the Fidelity underwriting bulletin means a seller and buyer of real estate have to sign an affidavit attesting that the property was not used for any purposes related to cannabis activities.

The bulletin was issued because the company said it did not want to discover at the actual closing event that the property “is used or intended for such purposes,” which would then resulting declining the title insurance coverage. If the statement is sent to buyers before the closing Fidelity said “it should make it easier to decline earlier in the transaction and put the burden of disclosure on the parties to the transaction.”

Impact on Cannabis-Related Real Estate

Reaction to the Fidelity underwriting bulletin was strong. One title insurance executive said the memo “sounds like a game changer” in terms of how cannabis-related properties can be bought and sold.

He also speculated that the company may have been acting in response to federal pressure to stop the expansion of the cannabis industry in states where it has become decriminalized.

The title insurance executive said “this can be a way to shunt this title insurance business to a subsidiary or the re-insurance industry at a much higher cost for title insurance or to use an indemnity policy.

In a LinkedIn post on March 2017, prior to the issuance of the Fidelity underwriting bulletin, attorney Michael J. Moore, citing an earlier 2016 article written by Vince Sliwoski, wrote “in states that have legalized the plant so far, title insurance companies set up a specific exception in their policies which excludes coverage over governmental actions, such as civil and criminal forfeiture of property under the federal Controlled Substance Act. Failure of the purchaser to disclose its intended use of the property may result in the title insurance company denying liability on a claim relating to property forfeiture because of the marijuana activity on the property. It is recommended that a buyer disclose their intended use of the land. Otherwise, the title company has an argument not to pay on claims.”

Moore also said “many title insurance companies have refused to act as an escrow agent for those transactions, because of the uncertain legalities involved. They have refused to handle the transfer of funds and closing documents. Some companies will not get involved in any aspect of the closing process, while others may provide a facility for the settlement of the transaction and issue a title insurance policy. Without title companies providing escrow services, the parties to a transaction must locate neutral third parties to perform the service.”

While the insurance industry, including life, auto, home, have addressed claims and procedures in states where cannabis is legal or decriminalized, the real estate title insurance directive has more significant and expensive implications.

The Fidelity underwriting directive, however, takes the decision to not insure title for cannabis-related properties to a new level and one that may have been developed at the behest of federal authorities.

Outlet stores are a staple of the retail industry and give many companies a much-needed revenue boost. Customers like them because they get brands names they love at a deep discount. A win-win. Dispensaries have been copying many methods of traditional retail and so it wasn’t going to be long before a cannabis outlet store popped up.

TGS Outlet Store opened in July in Silver Plume, Colorado less than an hour from Denver. The owners like the location because it’s right off the highway and convenient for tourists heading to the mountains, but is still accessible for Denver residents. It isn’t too far from a traditional outlet shopping center and so it fits in with the retail theme. Yet, it isn’t operated like a typical outlet store, which normally sells a lower quality product from a designer label and then claims to be discounted from a fake original price. That product is created specifically for the outlet chain.

The Green Solution has several physical stores in Colorado and the owners say that it is the same quality of products offered in their regular stores. “The variety of product offered like “mountain favorites” versus “metro favorites” and items for which we have a surplus of supply,” said Kyle Speidell, Co-CEO and Co-Founder of The Green Solution. “With cannabis, you do your best to project your product six months down the line, but since this is an agricultural product, we may have surplus of one strain versus another and that will take priority in our outlet store.” Since TGS is a seed-to-sale company, it isn’t selling other brands at a deep discount like a warehouse type of outlet store. Discounts will range up to 75%.

“The concept of an outlet store in the cannabis industry is an interesting concept,” said Ken Nisch, chairman of Detroit-area retail design & branded environments firm JGA and a partner in the dispensary company The Clinic. “Outlets existed originally to clear past season’s product, but more recently outlet retailing has become just another channel of distribution sometimes for lesser quality products that were manufactured for outlet sale only, or in some cases manufacturing “mistakes.” Nisch went on to say that designers like Coach and Ralph Lauren have begun to rethink their outlet business because it was cannibalizing their main business and hurting pricing.

Speidell doesn’t believe it will start a cannabis price war. “TGS Outlet store is not simply a price changer, it’s a concept change. TGS is dedicated to continuously offering the highest quality product at an affordable price.”

The cannabis industry may have lots of acres of marijuana plants, but polished chief executive officer’s seem to be in short supply. Two different cannabis investor groups confessed that they get excited when they come across a “good” CEO, because too often the emerging cannabis companies are lead by founders that are unable to either take the business to the next higher level or behave in a manner that isn’t appropriate for a company leader.

Take for example, a recent exchange on Facebook  with the CEO of EvoLabs  Alex Cahoj. A woman associated with cannabis smokers made a statement that abortion was normal and not shameful. She linked to a story about female athletes having terminated pregnancies. Cahoj suggested the woman “Just don’t be a whore. It’s not that complicated.”  A comment that was incredibly inappropriate regardless of one’s position on a woman’s choice to terminate a pregnancy. It also begged the question, why would a male CEO of a vape pen company feel the need to weigh in abortion rights and call out a woman in such a public forum and using that language?

Cannabis insiders say they watched the exchange in real time and were shocked to see it. The comments have since been deleted.

Then there’s Mike Straumietis, chief executive officer of privately-held Advanced Nutrients and known also as Big Mike. His widely followed Instagram feed frequently features scantily clad women in tiny lingerie. His company is touted as the number one nutrient brand and has been reported to have sales anywhere from $65 million a year to $90 million. The products can  be bought through Amazon and Wal-Mart. It’s his company and he has every right to portray himself as the marijuana playboy. However, the cannabis industry has shown itself to be very welcoming to female executives and many have no interest in seeing women’s butts in tiny panties on a CEO’s public Instagram feed.

One of the recurring themes from insiders that preferred not to go on the record, were that many cannabis company founders got their start in an alternative industry with a federally illegal product. This was the catch-22. Experience in the industry meant you were a law breaker. It also meant that maybe that these types of executives (not necessarily the previous examples) either weren’t able to follow traditional career paths for various reasons or had no desire to enter the buttoned up corporate world.

Some company founders have managed to learn and grow with their companies. Others have been shifted to other positions while more seasoned executives from outside industries have come in to take over.

Of course, the cannabis industry isn’t alone in this challenge. Witness Silicon Valley’s bro executive problem. Tech companies may have the more polished CEO’s, but they can’t seem to recover from the bro mentality like Uber’s Travis Kalanick who recently had to step down as his lack of polish became evident.

“The characteristics of a good CEO of a cannabis company resemble that of a good CEO of any other company – intelligence, diligence, leadership, vision, and stability,” said Bryan Meltzer, Partner at Feuerstein Kulick. “As more and more professional CEO’s continue to enter the space, legal cannabis companies, as well as the overall industry, should benefit from the knowledge and best practices utilized in other industries.”

As the founders of the cannabis industry either find that they don’t have the skill set to grow with their companies or resist the push to be more “corporate”, executives from other industries looking for a challenge are happy to step in. Eager for the opportunity to get in on the ground floor of an emerging industry.

Krista Whitley, CEO and Founder at Social Media Unicorn said, “One of the greatest opportunities for the cannabis industry is for talent from other industries to bring their expertise to our vertical. For both of my cannabis organizations I have actually never put out a ‘Now Hiring’ sign. We aren’t ‘now hiring’. We are always hiring great candidates, so I have a pool of people who want to join our team any time expansion is required.”

Desert Hot Springs in California is becoming a popular place for cannabis growers. The latest deal is an announcement by Canadian company Marapharm Ventures (OTC: MRPHF) to purchase 1.25 acres in the town. The company said that the property is approved for 20,664 square feet of cannabis cultivation and manufacturing. Marapharm paid $520,000 for that property and it is expected to close before August 31.

The company said in a statement, “The city has approved an interim plan for cultivation with a temporary certificate of occupancy which increases the value of the acquisition.” Desert Hot Springs got an early jump on other California cities when it became the first city to legalize large-scale medical marijuana cultivation. While the town has generated a lot of attention for its big Coachella festival, it wasn’t able to parley that into consistent business development.

In just two years since the town passed the ordinances in 2014, it had approved 11 applications and more than 1.7 million square feet of cultivation. The town was also just featured in a CNBC special show, “The Profit.”

“As is the case with our operations in Nevada and Washington, we are growing quickly to become a dominant player in the California cannabis market. This is the third acquisition of property we plan to use for cannabis operations in California and it brings us to 9.49 acres and 151,875 square feet of provisional licenses for medical cannabis. Where appropriate and in line with market and demand, we will transition these to recreational licenses,” said Linda Sampson, Marapharm CEO.

Premium cannabis company Canndescent was the first medical marijuana cultivation facilities in the town and delivered a check for $135,000 in tax payments last year. Tax revenue is a big incentive for the sleepy desert town to put out the welcome sign for cannabis cultivators. In addition to that, the cannabis companies are bringing jobs to the town with Canndescent contributing almost $3 million in wages.