The current economic uncertainty, coupled with stifling regulations, price compression, lack of access to capital, and restrictive banking options are increasing distress and making disputes between business partners more common. The range of agreements in the cannabis industry means that we see a large number of breach of contract disputes at Cantafio & Song, and our team of cannabis lawyers is well-versed in why they occur and how they can best be avoided.
Cannabis Lease Disputes
Leases are one of the most common and important contracts in the cannabis industry. At the core of the issue is the linkage between cannabis licenses and location. The applicable licenses for dispensaries and cultivation facilities are tied to a particular location or address. If the lease is lost, the license is lost with it. Lessors often demand personal guarantees, which create additional risk and potential liability for owners. Additional problems and disputes can arise if the lease involves any construction or build-out, as delays can have serious impacts on operations and revenue timing. Making sure that these details are thoroughly and fairly addressed in the lease is of vital importance in those situations.
Cannabis Operating Agreements
Breach of contract disputes in cannabis can also surface when entity governing documents are lacking in detail and clarity. How will the company operate internally and who will be expected to perform what operations? If something goes wrong from a regulatory standpoint, who is responsible? What are the rights and responsibilities of minority owners? What happens when an owner wants to exit? Addressing such issues directly and clearly in the entity’s governing documents can minimize disputes and ideally avoid litigation.
Similarly, ambiguity in agreements between businesses can lead to disputes. While the notions of “doing business on a handshake” and “my word is my bond” are often touted and romanticized, prudent businesses get their agreements in writing and are well documented. Confirming key terms and specifically defining responsibilities is a highly preferred approach, especially in the volatile cannabis industry where new and unforeseen issues arise routinely. The cannabis industry evolves seemingly with every legislative session, and new regulations must be accounted for, and new opportunities (i.e. cannabis delivery) can be pursued. Accordingly, effective contracts in the cannabis industry require detailed knowledge of both the applicable legal/regulatory requirements and the unique business considerations at issue.
Choosing the Right Partners in Cannabis
When entering into a contract in the cannabis industry, choosing the right partner is paramount. Vetting potential business partners to make sure they can and will deliver on what they promise is one of the best ways to minimize the risk of future disputes. A trustworthy business will not resist documenting agreements, which can start with a letter of intent and evolve into a comprehensive formal contract where appropriate. A skilled cannabis business lawyer can provide valuable assistance navigating and tailoring this process to the needs of the situation, as well as identifying potential red flags and deal-breakers along the way.
As one of the top cannabis law firms in Colorado, Cantafio & Song understands the complex nature of the cannabis industry and the business issues that can lead to contract disputes. We are also a full-service law firm, and assist clients in other areas of law such as criminal defense, estate planning, litigation, real estate, and more. If you have needs in any of these areas, contact Cantafio & Song’s legal team today.