How your Cannabis Company can avoid getting sued.

Rachael Z. Ardanuy, Esq.
Jun 29, 2018
3 min read

Updated: Jul 6, 2018

How cannabis businesses can protect themselves against lawsuits.

I received an email last month that was both amusing and alarming. It was an invitation to enroll – as an attorney – in a series of classes and seminars, in order to learn how to properly sue cannabis companies.Yes, if you’re in the marijuana business, they may be coming after you.

What are they coming after?

The short answer: anything they can. Now that cannabis is being taken seriously as an industry with explosive growth and incredible business opportunities, competitors are taking notice. Lawsuits are popping up across the country spanning claims of wrongful death to copyright infringement to product liability. It’s coming from industry players as well as big giants like Hershey’s. While there are still many organizations pursuing lawsuits for incorrect licensing or racketeering (while federal prohibition remains in effect), there is also a new wave of lawsuits emerging that are attacking the business practices of marijuana businesses.

How to protect your cannabis company

Getting Started - Success in business begins with knowing and understanding the federal, state, and local laws that govern your industry. Starting your business may take different forms depending on who’s involved, what you’re selling, and where you’re located.

Charter Documents – Work with an attorney to properly handle the paperwork for forming your business. Why? Because these documents lay out the rules of the road for how you and your organization will operate, resolve potential disputes, and govern how new partners can enter and exit.

General Business – Marijuana is booming business, so like any other industry, you’ll need general business counsel on everything from developing your business planin order to secure a loan to brokering your biggest deal yet.

Relationships Need Contracts

Now that selling, growing, and processing marijuana is legal in many states across the country, whether for medicinal purposes or adult-use, everything needs to be documented. Outlining your relationships and their boundaries in writing is the number one way to cover yourself in case a lawsuit comes calling.

Sales Agreements– Each contract is unique, butsales agreementswith wholesalers, retailers, vendors, and other corporate partners should be inked before any product or funds change hands.

Vendor Agreements– These contracts are not just for other companies in the industry. If you’re doing business with any ancillary partners, your paperwork should clarify how their product is being utilized to create yours to avoid claims down the line.

Lease Agreements – Because of the current federal prohibition on marijuana, you’ll need to get more approvals along the way. This includes finding a spaceto work out of, since zoning requirements for retail, agricultural, and cannabis businesses vary a lot.

Navigating the Constantly Changing Regulations

You’ll likely see a plethora of ‘compliance consultants’ available for hire, but keep in mind, these individuals are not legal representatives. They may be up on the latest industry news, but an attorney is putting her legal license on the line when she provides you with counsel, so you know you can trust it.

Licensing– This is the biggie. In order to stay in business for any length of time, you’ll need to be sure your business is in compliancewith all marijuana enforcement laws, rules and regulations. Frequently, the locality of the business has a set of rules to comply with on top of the state requirements. By working with an attorney in the industry, you’ll avoid errors and save both time and money.

Policies– In addition to business regulations, your business (depending on what you do) also needs to adhere to overarching policies like product labeling requirements, cannabis packaging, and food handling.

Non-Disclosure Agreements– Sharing your knowledge and expertise is awesome, as long as you’re in charge of to whom and when. NDAs can provide protection and secure rights for your IP, if you know how to use them.

Growing Your Team, Legally

I predict this could be the next wave of lawsuits to overwhelm cannabis companies. As you grow your business and build a team, it’s important to be aware of the challenges that come along with employees and contractors. Until you’re big enough to have an in-house legal and HR team, consult with an attorney before bringing on your first hire.

Employees – Employment laws are a big deal. Former employees have walked away with millions after successfully suing for wrongful termination, discrimination, hostile work environment, emotional distress and more!

Independent contractor– Labor laws apply to independent contractors, too. There are several requirements that you’ll need to fulfill to distinguish an employee from an independent contractor, otherwise you’ll end up paying for the misunderstanding.