Legalized cannabis has so far been confined only to certain states and cannabis remains illegal under federal law. If you have a marijuana business in a state where marijuana is legal, you need to ensure your contracts take into account this state/federal dichotomy. If you don’t, you may find yourself unable to enforce your contract.
Let me explain.
In states where marijuana (be it recreational or medical) is now legal, your marijuana business is now legal. With this legitimacy comes the expectation that you will operate like a legal business. For us cannabis business lawyers, this means that we are constantly drafting all types of contracts for our cannabis business clients. We draft leases. We draft employment contracts. We draft distribution agreements. We draft licensing agreements. We draft purchase and sale agreements for all sorts of items that go with operating a legal cannabis business, including contracts to buy and sell cannabis trademarks and copyrights.
We draft our cannabis contracts to require resolution of disputes in the state in which the medical cannabis business operates, to ensure that the contract will be enforceable. Because of federal prohibition, the federal courts are not likely to enforce most contracts entered into by cannabis businesses, and they certainly will not enforce a contract to buy or sell cannabis. In other words, if you should find your cannabis business in a federal court, (be it a district or bankruptcy court), or in a state court where marijuana is still illegal, there is a good chance the court will deem your contract void and will not enforce it. The same goes for states that have not legalized cannabis.
In real world business terms this means that if your cannabis business is going to use contracts to protect its business interests, (which it should), and you want to be able to enforce those contracts, (which of course you do), you are going to want to avoid the state and federal jurisdictions where marijuana remains illegal. In other words, you need to ensure your dispute will stay in your “home” court. Such forum selection clauses have the added benefit of minimizing the risk that the counter-party on your contract can remove your case to federal court after you sue in state court.
Therefore, you must be certain that any contract you sign on behalf of your cannabis business contains a provision making clear that all claims must be resolved in the state courts of the state in which you operate. Be sure the contract also provides that the contracting parties waive any right they might have had to pursue claims in or remove claims to a federal court.
Bottom LIne: The patchwork of legalization on the state and federal levels creates obstacles for cannabis business at nearly every turn, but finely tuned contracts provide one opportunity to put some predictability into your business relations.