A proposal pending in the Oregon Legislative Assembly would limit title insurers’ potential grounds for refusing to insure certain real property transactions involving cannabis. Specifically, HB 2806, presented by Reps. David Brock Smith and Gary Leif, would prohibit title insurers and their affiliates from refusing to close or insure real estate transactions solely because the property at the center of the deal has been used for the purpose of growing, producing, manufacturing, or selling cannabis, or conducting other activities related to cannabis if the growth, production, manufacture, sale, or other activities occurred in compliance with Oregon cannabis statutes.
A violation of the bill would constitute an unfair and deceptive practice in the transaction of insurance in contravention of Oregon statute 746.240. The bill would also compel the Director of the Department of Consumer and Business Services to adopt rules that prohibit such violations and impose a civil penalty of up to $5,000 per violation.
The bill is in the House Committee on Business and Labor. There are currently no committee meetings or floor sessions scheduled to discuss it. Once the House Committee on Business and Labor has completed its review, the bill will be referred to the House Committee on General Government.
What’s Wrong with the Status Quo?
The cannabis industry in the United States has developed within the context of conflicting federal and state laws. While several states and municipalities have adopted laws purporting to legalize or decriminalize various medical or recreational uses for cannabis, cannabis remains illegal as a Schedule I controlled substance in the United States.
This tension between federal and state law often leads to confusing, disjointed, or even absurd results. For example, it may be lawful under state law for a business to sell medical marijuana and to obtain property insurance on its dispensary, but the owner of real property may find its title unmarketable based on the unavailability of title insurance. Naturally, without title insurance, and the associated improved marketability of title, many owners of real property associated with the cannabis trade made find themselves unable to sell the property for fair market value or to obtain financing with the real property serving as collateral.
The Practical Implications of the Proposed Legislation
To be clear, HB 2806 is not law and may never be law. Regardless, though, the bill raises important questions for the title insurance industry and for other industries who purposely, or even unintentionally, interact with cannabis-related businesses. One only needs to look at the language of HB 2806 and consider how such a law would be enforced to recognize the myriad challenges facing this type of law. The bill:
prohibits person that transacts title insurance in this state from refusing to issue policy of title insurance or refusing to close or insure real property transaction solely because real property that is subject of transaction has been used for purpose of growing, producing, manufacturing or selling cannabis, or conducting other activities related to cannabis, if growing, production, manufacture, sale or other activities occurred in compliance with state laws relating to regulation of marijuana items. (emphasis added)
Based on the use of the term “solely” in the language of the bill, it seems possible, if not somewhat likely, that a title insurance underwriter in Oregon would move forward with providing title insurance but would seek to include a new standard exception in all title commitments and title policies. The exception could read something like “this policy does not insure against loss or damage by reason of any violation of state or federal laws relating to the regulation of marijuana.” It also remains to be seen what, if any, response Oregon is likely to receive from title insurance underwriters, who could take the position that forcing them to insure title in this way when marijuana is still illegal at the federal level goes too far. Regardless, and again, this newly proposed legislation displays a continued and interesting intersection and tension between state and federal laws.
Finally, be on the lookout for similar types of legislation impacting other industries that interact with cannabis-related business. Insurance companies, employee benefits providers, and other companies that provide generally applicable services (e.g., janitorial services) may soon face similar legislation in Oregon and other states. We will continue to monitor the situation with HB 2806 in Oregon – and any similar legislation – as it develops.