Business
Affirmative Defenses to Breach of Cannabis Contract Claims
In almost every cannabis litigation webinar we’ve done, and in many of our past posts discussing breach of cannabis contracts (the general breakdown of this claim is here), we’ve stressed the importance of memorializing good cannabis business agreements – in writing – to save yourself from potential or protracted litigation down the line.
Still, even the best cannabis contracts can become the subject of breach of contract claims depending on the surrounding circumstances. In today’s post, we’re going to discuss the most common affirmative defenses to a breach of contract claim that might be applicable to a defendant’s situation.
Mistake
A mistake of fact or law can be an affirmative defense to a breach of contract claim. This falls into two separate categories: unilateral mistake and bilateral mistake. To win on a unilateral mistake defense, the defendant must prove the plaintiff (a) knew the defendant was mistaken, and (b) plaintiff used that mistake to take advantage of the defendant. Note that the defendant does have a duty to make a “reasonable inquiry” to understand the contract (meaning, you can’t just bury your head in the sand and later claim mistake). To win on a bilateral mistake defense, the defendant must prove that (a) both parties were mistaken about a material fact, and (b) defendant wouldn’t have agreed to enter into the contract if they knew about the mistake.
Duress
In limited situations, duress can also be argued as an affirmative defense in cannabis litigation. I say limited because this is not as easy to prove as some people believe. In order to win on a duress defense, the defendant would need to prove that (a) plaintiff used a wrongful act or wrongful threat to pressure defendant into consenting to the contract, (b) defendant was afraid/intimidated and did not have the free will to refuse, and (c) defendant wouldn’t have consented to the contract without the wrongful act or threat. Note that the wrongful act or threat can be something like criminal action (physical harm) or what’s known as “economic duress” (for example, threatening a bad-faith breach of contract lawsuit).
Fraud
Fraud is arguably the most common and most dismissed cannabis litigation claim. The defendant must prove that (a) plaintiff represented fraudulent statements to defendant, (b) plaintiff knew the representation wasn’t true, (c) plaintiff made the representation to persuade defendant to agree to the contract, (d) defendant reasonably relied on this representation (again, you can’t just bury your head in the sand!), and (e) defendant wouldn’t have agreed to the contract if they had known the representation wasn’t true. The fraudulent representation can be both a misstatement or concealment of fact. Obviously, this is a fact-intensive defense and is also commonly used in tandem with fraud-esque counterclaims by defendant.
Waiver
Waiver embodies the concept that the defendant doesn’t need to perform the contract because plaintiff gave up their right to have defendant perform. A waiver can be oral, written, or even inferred from the plaintiff’s conduct – whatever can be used to show that plaintiff gave up their right. Perhaps most commonly, this comes up when a defendant knows the plaintiff has breached the contract, but continues to abide by the contract or receive the benefit of the contract.
Novation
Finally, novation relates to when the defendant claims there was no breach of contract because the original contract with plaintiff was substituted by a new and different one. While this again can be inferred from the parties’ conduct, the same rules of contract construction apply – novation requires a showing that (a) there’s an intent to discharge the old contract, (b) mutual assent, and (c) consideration. This is also highly fact-intensive and the defendant has the burden to prove it.
Source: https://harrisbricken.com/cannalawblog/affirmative-defenses-to-breach-of-cannabis-contract-claims/
New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”
Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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