Business
Top Ten Cannabis Contract Basics
In the 21st century of cannabis, cannabis businesses of all sizes still ignore some contract basics. Whether it’s a cannabis distribution agreement, a cannabis intellectual property licensing agreement, or some form of cannabis M&A, the contract basics listed below need attention.
Date the agreement
This seems obvious and trivial, but a lot of companies skip this extremely basic step. If there’s any dispute between the parties, you may be impaired by the lack of this essential documentation. Just make things easy on yourself and define the “Effective Date” of the agreement as the date on which all of the parties sign.
Get your recitals straight
Lots of cannabis companies think that contract recitals don’t matter. This isn’t true. Recitals can be crucial where they give context to the agreement, describe the parties’ intent and history, and may be incorporated as enforceable provisions into the agreement itself.
Get your changes in writing
Most agreements contain boilerplate provisions requiring that all enforceable changes be made in writing and signed by all parties. Of course, the parties are also free to agree on enforceable verbal changes, creating a multitude of messes during the agreement. Just get your contractual changes (amendments) in writing to keep everyone honest.
Define the term
Many cannabis contracts are needlessly open-ended. This is a mistake. Good contracts define the term of the agreement so that the parties know when their obligations to each other end. Define a term accordingly and include provisions for renewal if you’re looking to re-up the terms and conditions after the term ends.
Revisit your agreements on a regular basis
Lots of changes occur in the life of a cannabis business. Changes to cannabis regulations, alone, can wreak havoc on a cannabis contract. This means that companies should be revisiting their lucrative contracts on a regular basis to ensure that they’re not breaching those agreements and/or to see if the agreements need to be updated or changed in accordance with changing laws and regulations.
Keep capitalized terms consistent
There aren’t many things more frustrating for a transactional lawyer than to see the inconsistent use of capitalized terms. I see this misuse in most cannabis contracts to this day. Capitalized terms should be defined and they carry major weight in a contract as a result. To use those terms incorrectly can muck up the contract’s interpretation and enforceability.
Governing law matters
When parties to a contract are happy, governing law of the agreement is an afterthought. However, when a dispute arises, governing law becomes a top priority. I see lots of cannabis contracts coming to my clients from Canada and more often than not the governing law is Canadian law. Clients don’t typically realize the implication of Canadian law governing their conduct under the agreement. If you get one of these agreements, make sure the governing law is that of the state in which you’re operating.
Disputes
Good contracts clearly quarterback what happens between the parties in the event of a dispute. Failure to include a dispute provision (or to include a poorly drafted one) leads the parties directly into court without any kind of mandatory alternative dispute resolution options. Going straight to court may sound good to some parties, but in reality it will take a significant amount of time and money to resolve issues that way. A solid dispute provision will incentivize the parties to work together (before taking the gloves off) to overcome their issues.
Correctly fill in notice provisions
I cannot tell you how many times I’ve seen blank notice provisions or notice provisions that aren’t updated with properly designated addressees. A notice provision is often overlooked as inconsequential, but it matters a lot if the parties fight. Why? Because this provision dictates things like effectiveness of the parties’ communications between each other for things like service of legal process, termination, and payment.
Ignore the regulatory at your peril
To save themselves some dollars, cannabis companies still seem to DIY on their legal agreements, which means many are pulling their major contracts from google or “frankensteining” previous agreements they receive from past attorneys. None of those contracts seem to competently take into account the cannabis regulatory situation posed by state and local law. That failure will have detrimental implications for the parties in that the agreement may be altogether unenforceable, nonsensical, or immediately put one or more parties in breach.
Source: https://harrisbricken.com/cannalawblog/top-ten-cannabis-contract-basics/
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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