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Lawsuits in the cannabis space

As the cannabis industry matures from illegal activity to legitimate businesses, it faces the same exposure to lawsuits that exists in other industries.

Once upon a time—and not long ago—it would have been unheard of to try a cannabis civil lawsuit in an American courtroom.

However, the cannabis industry cannot be ignored. With most U.S. states having established some form of marijuana legalization, and international jurisdictions acting similarly, the pace of commercial activity in the space has accelerated. Similarly, a swell of business activity surrounds hemp and hemp-derived products, particularly with much attention being paid to cannabidiol (CBD). The passage of the 2018 Farm Bill further added momentum to an already popular cannabis market.

The cannabis industry is made of more than greenhouses and dispensaries. Cannabis entrepreneurship is thriving. Beyond the plant-touching businesses—those involved in the actual cultivation, processing, and/or sale of marijuana, hemp or derivations of either—all kinds of ancillary companies and service providers participate in the cannabis marketplace.

Within this fast-maturing cannabis economy, as in all industries, disputes arise that sometimes need to be litigated. After all, apart from their regulatory obligations, cannabis businesses and their owners are still subject to civil laws like all other businesses. Disputes can arise when, to name just a few scenarios, well-intentioned deals go wrong, people conduct business without sufficient legal or regulatory knowledge and guidance, or a business engages in misleading behavior toward consumers.

To illustrate how a dispute may arise from an agreement gone wrong, imagine that Company X promises Company Y it will perform a specific service or deliver a certain product in exchange for money. A common contract dispute might arise when either Company X fails to perform, or Company Y fails to pay. As the cannabis industry matures and bigger business interests are involved in these agreements, more is often at stake for the parties in such a dispute.

But it is naïve to think only one type of lawsuit, or even a handful of disputes, would apply to the cannabis industry. While there are some seemingly unique functions of the regulated cannabis industry, a lawsuit that might be brought in any other commercial setting is possible in this space, too.

While there is no way to avoid any lawsuit from occurring, businesses and individuals can take steps to mitigate risks to legal exposure. This can be done in multiple ways and begins at the inception of any cannabis business activity. Businesses and individuals can consult with legal professionals to understand the regulatory framework of their respective jurisdictions and ensure their operations will be compliant. Legal advice also can be sought in navigating entity formation and other similar procedures new commercial actors may face.

Once in operation, consultation with an attorney regarding ongoing business activity also can be important. For example, before entering into any agreement, a business or individual can consult with legal counsel to determine whether the agreement should be in writing, whether the agreement is enforceable in a court of law, and/or whether it contains appropriate terms and provisions for the specific situation.

Beyond these examples, products liability class action lawsuits, patent or trademark infringement lawsuits, deceptive trade practice lawsuits, internal corporate disputes and commercial landlord-tenant lawsuits are just some of the varied ways that cannabis has been the subject of civil litigation.

Still, criminal lawsuits remain; before recently, these were the only type of U.S. cannabis litigation. Despite the optimism and momentum that rules the day in much of the cannabis industry—especially with passage of the 2018 Farm Bill providing protections for hemp and its derivatives— marijuana itself remains a controlled substance under federal law, as well as under state and local laws of some U.S. jurisdictions, in which prosecution of marijuana charges is still an ongoing reality. Individuals and businesses can seek legal consultation as to whether they are acting in compliance with the laws of their respective jurisdictions.

As America’s cannabis industry becomes recognized as a commercial industry like any other, disputes are going to continue to arise, and some of those disputes will continue to become lawsuits. Commercial participants of the cannabis space should be aware that the same exposure to legal claims that exists in other industries will exist here too, and that while lawsuits cannot be avoided, a business can help mitigate that risk.

Darren Kaplan is an associate attorney at Hoban Law Group (hoban.com) in Denver, Colorado. Darren has worked on several legal issues in the cannabis space, specializing thus far in industrial hemp, regulatory compliance (hemp and marijuana), and civil and commercial litigation. This article has been prepared for informational and general guidance purposes only; it does not constitute legal or professional advice. You should not act upon the information contained herein without obtaining specific professional advice. No representation or warranty (express or implied) is made to the accuracy or completeness of the information contained in this publication. Hoban Law Group, its members, employees, and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based thereupon.

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