As More Opportunity Arises in the Cannabis Industry, Potential Business Pitfalls Also Increase

Benjamin Franklin famously suggested fire-threatened Philadelphians in 1736 that “an ounce of avoidance is truly worth a pound of get rid of.”

With sector growth and maturation arrives improved chances and difficulties. As the cannabis enterprise matures and spreads into new geographic locations, the field can consider benefit of more substantial markets nonetheless, it also faces amplified danger and litigation throughout a myriad of its operations. This short article identifies some of individuals growing pains together with suggesting how to stay away from the far more clear and standard varieties of concerns just before they become a problem.

Contracts/Industrial Agreements

One particular supply of rising developments in cannabis litigation notes that about 1/3 of litigation in 2022 could be labeled broadly as industrial disputes. As the a variety of point out legislation enable for expansion of authorized cannabis functions into a lot more states, operators will enter into a lot more industrial agreements to develop and scale operations throughout the United States.

I am amazed by how quite a few providers do not adequately doc their industrial agreements. A host of challenges too various to discuss in depth right here ought to be resolved in a commercial agreement depending on the kind of transaction. In quick, make confident agreements are in writing, signed and contain an efficient date. They ought to be comprehensive and unambiguous, allocating obligations and hazard as meant.


When fundraising, no matter whether as credit card debt or equity, a company should comply with challenging and technical U.S. and relevant state securities laws. These regulations and laws need both the registration of the securities providing, which is extremely highly-priced, or an applicable exemption from a registration. Failure to comply could guide to lawsuits filed by traders trying to recoup all their cash, even if they have no damages, along with possible fraud statements or fines and penalties imposed by applicable federal or state agencies.

Landlord-Tenant disputes

When renting commercial real property, create agreements that deal with the key difficulties in crafting in circumstance of disputes with house house owners. Understanding the lease phrases and demands, as properly as tenant legal rights and obligations beneath state and nearby legislation, are essential. Fork out awareness to lawful takes advantage of, minimal time period and renewal possibilities, running expenses and tax specifications, tenant default problems, foundation hire and other rental expenses, prevalent spot maintenance fees, routine maintenance and restore, tenant enhancement requirements and allowances, sublet and assignment, and requirements for the refund of the protection deposit.


A common location of misunderstanding that qualified prospects to disputes is the law governing employee relations. Providers often misclassify personnel, producing legitimate claims for earlier because of added benefits, fines and other damages for failure to classify accurately. In California, for illustration, effectively classifying a worker as an unbiased contractor is difficult. Some prevalent faults to keep away from include things like:

  • Designating non-exempt personnel as exempt and misclassifying employees as impartial contractors.
  • Failure to pay back required bare minimum wages or additional time.
  • Not delivering necessary food and relaxation breaks.
  • Failure to maintain exact time documents for non-exempt personnel.
  • Inaccurate and noncompliant payroll records (aka “wage statements”) with all the necessary information and facts.
  • Improperly administering leaves of absence, specially for workers with health-related conditions or disabilities.
  • Not cautiously documenting efficiency concerns by employing performance opinions, or “writing up” very poor functionality, and many others.

Failure to have a composed worker handbook masking critical guidelines this kind of as getaway and essential carry out, as very well as misapplying these procedures, can guide to disputes. Shell out interest to condition and nearby employment regulations that apply at the various phases of progress and expansion.

Mental Property

Protecting the company’s intellectual property is essential to maintain the goodwill and benefit of a business. Cautiously assess the necessities for any patent, trademark, copyright, and/or trade secret security and occur up with a prepare to put into action and monitor the relevant mental property property. Do not disclose feasible patentable intellectual assets and inventions prior to submitting a provisional patent application, or the means to attain patent protection will be ruined. Just before applying a tradename or trademark in commerce, look into if anybody else is applying a equivalent name for comparable goods and products and services. Failure to do so could guide to claims for infringement and a judgement demanding the business to cease making use of its most well-liked name or symbol just after investing time and revenue in creating the brand name. Take into account registering at the point out and federal amount the title and logo to safe your legal rights in the model. What and where a hashish company can sign-up its manufacturer name and emblem for protection are presently limited, so be recommended registration can be tough.

Trade mystery safety attaches to important facts not easily ascertainable by lawful signifies, this kind of as a method, sample, system, machine, compilation, system, system, or course of action that is magic formula. Defense afforded to trade tricks does not expire if the info is held secret. For instance, the Coca-Cola formulation has been kept solution for over 100 many years, hence sustaining its benefit. Firms should also carry out and retain ideal actions to protect the inadvertent disclosure of the information and facts in order to manage an asset’s position as a trade mystery. Prior to disclosing any private information and facts, make guaranteed to have a suitable prepared confidentiality arrangement in location with the receiver, or you could get rid of the safety afforded by trade mystery law.

Choosing the proper staff to produce worthwhile intellectual assets is significant to the achievement of any enterprise. Make confident to have workers and contractors assign their passions and ownership rights to the do the job they generate, and create a created invention-assignment agreement in favor of the corporation to stay clear of possession disputes. Pursuits in copyrightable functions designed by assistance suppliers ought to be assigned in a published arrangement. Failure to do so could diminish the company’s price.

Taxes & Licensing

At times a company unavoidably will get guiding in paying out its taxes. Failure to pay out taxes on time sales opportunities to penalties and fines and doable highly-priced audits by the tax authorities. In addition, private liability can attach to directors and officers for failure to pay out work taxes. Cannabis businesses might have numerous licensing demands as effectively that are vital to keep track of to remain in excellent standing.

Insurance policies 

Satisfactory insurance plan is a will have to-have for every business enterprise. Carry out a periodic checkup of the company’s insurance coverage protection. Consider directors’ and officers’ insurance policy, normal business liability and property, products and solutions legal responsibility, workers’ compensation, employment practices liability protection, cybersecurity, and business interruption insurance plan. All those sorts of coverage are vital protections for the hazards connected to any business enterprise that sells a products or assistance, has personnel, offers with the general public, or could eliminate income from unanticipated situations like fireplace, all-natural disasters and civil interruptions. Discuss your individual insurance plan wants with a certified insurance plan broker, as one size does not in good shape all.

Seek advice from with Capable Lawful Counsel

Consult with lawful counsel to evaluate and get ready for the risks famous in this article and other widespread legal troubles to guard the company’s property, avoid disputes and create and keep enterprise value. Usually, you could come across that, as outdated Ben Franklin pointed out, you will commit several lbs to consider to treatment complications that could have been avoided with just an “ounce of prevention.”