california cannabis intentional interference litigation

Welcome back to our litigation series on California cannabis claims. Today, we’ll be discussing intentional interference or “tortious interference” – which may apply to your situation if you find that a third party is improperly interfering with you and your contractual relationships.


This claim stems from California’s basic recognition that contractual relationships are worthy of protection from the acts of third parties. Therefore, any third party that intentionally seeks out to disrupt or otherwise interfere with an existing contractual relationship can be liable for the damage that results from interference.

Statute of Limitations

The statute of limitations on an intentional interference with contractual relations is two years. That clock starts ticking on the date of the third party’s wrongful act or, if unknown, no later than the date the contract is breached as a result of the tortious interference.

Elements of an Intentional Interference with Contractual Relations Claim

The elements of a cause of action for intentional interference with contractual relations are:

  1. A valid contract: a valid agreement must exist between the plaintiff and a third party.
  2. The defendant is not itself a party to the contract: this claim only applies to a third party that isn’t involved in your contractual relationship. Courts are somewhat vague about how distant that third party needs to be, but generally, the third party cannot be a party or an agent of a party to the contract. On the other end, the third party doesn’t have to be a total stranger either – it can have some kind of relationship to the contracting parties. This is a determination of facts made on a case by case basis.
  3. The defendant has knowledge of the contract: pretty basic, but the third party has to know the contract exists. (This is because of the next element, intent.)
  4. The defendant has intent to interfere with the contract: the third party’s acts must have been “designed” to induce a breach or other interference with the contract. Note: intent can be inferred if the third-party’s conduct was “substantially certain” to cause interference.
  5. A breach or interference of the contractual relationship: there must be a breach of, or interference with, the contractual relationship between the parties. Even making either party’s ability to perform the terms of the contract more burdensome or costly will qualify – you don’t need to show that the third party’s action resulted in a total breach of the contract.
  6. Causation: the plaintiff has to show that, but for the third party’s interference, the contract would have been performed.
  7. Damages/harm: finally, the plaintiff has to show actual damages that resulted from the interference.


Two types of damages are available here:

  • Compensatory damages: the plaintiff can potentially recover all damages flowing from the third party’s interference, including expenses, lost profits, and prospective profits. Again, lost and future profits are only recoverable when “their nature and occurrence can be shown by evidence of reasonable reliability.”
  • Punitive damages: if the plaintiff can show by clear and convincing evidence that the third party acted with “oppression, fraud or malice,” punitive damages are recoverable as well.

We’ll be wrapping up this series with our final claim, violation of California’s Unfair Practices Act, shortly! For previous posts in this series check out the following:

psilocybin california mushrooms

Psilocybin has been in the news with increasing frequency as research into psychedelic therapy has proliferated, and a number of local jurisdictions, including the cities of Oakland, Denver, and Santa Cruz have decriminalized psilocybin to varying degrees. Much like cannabis, public perception of certain psychedelics like psilocybin is shifting rapidly, as people really the incredible potential for therapeutic benefits of entheogenic plants.

Last November, proponents (Decriminalize California) submitted the California Psilocybin Decriminalization Initiative 2020, which seeks to “decriminalize psychedelic mushrooms in California by submitting a citizens initiative to be placed on the ballot for the November 3, 2020 election, to the Office of the Attorney General.” In order to make it on the ballot, the initiative will need 623,212 valid signatures and in order to pass, it will need a 50% +1 vote. According to Decriminalize California, the current timeline for the initiative is as follows:

  • Submitted to the Office of the Attorney General on 1st November 2019.
  • 30 Day Public Comment period ended on 4th December 2019.
  • Received Title, Summary, and Fiscal Impact Reportfrom the Office of the Attorney General on 8th January 2020.
  • Currently: Eligible for signature collection.

The drafters of the current iteration of the initiative cite the following findings and declarations:

  • No one should be in prison for using Magic Mushrooms.
  • No families should be separated for using Magic Mushrooms.
  • Magic Mushrooms have been safely used for thousands of years for spiritual and religious purposes.
  • Taxing Magic Mushrooms will generate money for the State.
  • Regulating the sale of Magic Mushrooms will take money away from gangs and drug cartels.
  • Denver and Oakland have decriminalized Magic Mushrooms.
  • Magic Mushrooms are much safer than caffeine, nicotine, and alcohol. A 2010 analysis of the harms associated with the war on drugs found Mushrooms to be the safest of all twenty drugs studied.
  • The FDA designated Psilocybin (the main component of Magic Mushrooms) as a Breakthrough Therapy for treatment-resistant depression and major depressive disorder.
  • Research conducted by the Beckley Foundation has found Magic Mushrooms to be a safe and effective treatment for severe and treatment-resistant depression, anxiety in terminally ill patients, and nicotine addiction.

The initiative proposes amendments to the Health and Safety Code that would implement a regulatory framework for the “cultivation, processing and distribution of Psilocybin Mushrooms and the chemical compounds contained therein for personal, spiritual, religious, dietary, therapeutic, and medical use.” Many of the purposes cited in the proposed legislative language mirror the concerns of former U.S. Attorney General James Cole in his oft-cited 2013 Cole Memo related to the legalization of marijuana, including preventing distribution to minors, preventing cartels, gangs, and criminal enterprises from benefiting from legalization, preventing impaired driving, etc. But the drafters have contemplated some other purposes to this legislation, including, perhaps most importantly, supporting the therapeutic and medical research of Psilocybin.

Some other highlights from the initiative:

  • Taxes on Psilocybin Mushroom businesses could not exceed the amount charged or assessed for comparable non-Psilocybin Mushroom businesses.
  • Psilocybin Mushroom businesses should be regulated as closely as possible to other agricultural businesses, except for age restrictions and potency testing.
  • Psilocybin-assisted psychotherapy could be provided by mental health professionals with specialized training in psychedelic-assisted therapy and a license to administer Psilocybin and the California Department of Public Health (CDPH) would work with research institutions to develop protocols for healthcare worker engaged in such therapy.
  • There is a possibility for local jurisdictions to “opt out.”
  • Protections would be in place for employees who utilize psilocybin.
  • Legislation would be established to expunge the records of non-violent prisoners convicted of buying, selling, growing, manufacturing, or possessing Psilocybin Mushrooms.

If you’re interested in learning more about this initiative, or in signing the petition, visit Decriminalize California’s website here. In the meantime, for more on psilocybin, check out the following posts:

The Agriculture Improvement Act of 2018 (2018 Farm Bill) legalized hemp by removing the crop and its derivatives from the definition of marijuana under the Controlled Substances Act (CSA) and by providing a detailed framework for the cultivation of hemp. The 2018 Farm Bill gives the US Department of Agriculture (USDA) regulatory authority over hemp cultivation at the federal level. In turn, states have the option to maintain primary regulatory authority over the crop cultivated within their borders by submitting a plan to the USDA.

This federal and state interplay has resulted in many legislative and regulatory changes at the state level. Indeed, most states have introduced (and adopted) bills that would authorize the commercial production of hemp within their borders. A smaller but growing number of states also regulate the sale of products derived from hemp.

In light of these legislative changes, we are presenting a 50-state series analyzing how each jurisdiction treats hemp-derived cannabidiol (Hemp CBD). Today we turn to Oklahoma.

In April 2018, shortly before the passage of the 2018 Farm Bill, Oklahoma enacted the Oklahoma Agricultural Industrial Hemp Pilot Program (OAIHPP). The Oklahoma Department of Agriculture, Food, and Forestry  (ODAFF) passed temporary rules in May of 2018.

At the time that the OAIHPP was established, the 2014 Farm Bill governed hemp and Oklahoma’s program reflects that. According to ODAFF’s website, “a farmer wishing to grow industrial hemp must establish a relationship with a University or college that belongs to the Oklahoma State System of Higher Education and has a plant science curriculum. Once the farmer has a relationship with a University or College they can apply to the Department to receive a license for each cultivation site.”

In April 2019, Oklahoma passed Senate Bill 868, which directs ODAFF, in consultation with the Governor and Attorney General to submit a hemp cultivation plan to the USDA to bring the state’s hemp program in compliance with the 2018 Farm Bill.  According to the USDA website, Oklahoma is currently drafting a hemp cultivation plan.

When it comes to Hemp CBD there is yet another piece of recent legislation in the mix:  Senate Bill 238 which passed in May 2019.  Products containing Hemp CBD, other than pharmaceuticals approved by the FDA (i.e., Epidiolex), must include the following on the label:

  1. The country of origin of the cannabidiol; and
  2. Whether the cannabidiol is synthetic or natural.

SB 238 also states that, “retail sales of industrial hemp and hemp products may be conducted without a license so long as the products and the hemp used in the products were grown and cultivated legally in this state or another state or jurisdiction and meet the same or substantially the same requirements for processing hemp products or growing hemp.” This appears to indicate that Hemp CBD sales in Oklahoma are OK (apologies, I had to have at least one shameless pun).

SB 238 also states that the addition of hemp derivatives, including Hemp CBD, does not make “cosmetics, personal care products, and products intended for human or animal consumption” adulterated. A license is not required to manufacture Hemp CBD products. However, SB 538 does not “exempt any individual or entity from compliance with food safety and licensure laws, rules and regulations as set forth under the Oklahoma Public Health Code.” That clarification does not explicitly mention the Food, Drug and Cosmetic Act or FDA regulation meaning that Oklahoma has left the door open to Hemp CBD products that the FDA opposes, such as foods and dietary supplements.

Oklahoma is still working on its hemp cultivation plan. It may not have the most robust Hemp CBD regulations but SB 238 at least addresses Hemp CBD, which is more than many other states can say.

For previous coverage in this series, check out the links below:

Michael Bloomberg

Last fall, we ran a 13-part series taking a hard look at each of the 2020 presidential candidates’ history and views related to marijuana. We assigned each candidate a letter grade corresponding with our analysis (for the final summary post, go here). In that popular series, grading criteria was as follows:

  • Current stance on marijuana: What have they recently said about marijuana legislation? When did they adopt this stance? We awarded higher grades to candidates who currently support legalizing marijuana and even better grades if they have openly supported legalization for more than just the past couple years.
  • Website and social media: Did the candidate include marijuana on their website? How often do they mention marijuana on social media? We used the candidates’ websites and social media as a litmus test of their dedication to the legalization of marijuana. While most candidates have expressed support for legalization, some only speak on the issue when prompted or have very few statements on the matter. If a candidate does not actively advocate for marijuana, we doubt their conviction.
  • Past legislative history: How many marijuana-related bills did this candidate introduce, sponsor or sign? Did this candidate legislate the War on Drugs? How much opportunity did this candidate have to legislate bills? We considered the legislative history of each candidate to determine whether they would be likely to take real action to legalize marijuana as president.
  • Past rhetoric: What has the candidate said about marijuana over the course of their political career? What about the War on Drugs? The views of most candidates have evolved over time, but we gave lower grades to candidates with a history of strong anti-marijuana remarks.

Many candidates have since dropped out of the race, but a handful remain. After we concluded the series, businessman and former NYC mayor Michael Bloomberg announced his entry in to the race. Bloomberg’s summary is below.

Grade: D-

Stance on marijuana: This past December, Bloomberg’s campaign told the Wall Street Journal that he supports the decriminalization of marijuana. However, he does not mention marijuana reform on his social media nor on his campaign website. Bloomberg’s website paints the former NYC mayor as a long-time advocate for criminal justice reform, but his past rhetoric and legislative history tell a much different story.

History with marijuana legislation: In 2001, Bloomberg was elected mayor of New York City as a Republican. He won reelection in 2005 and again in 2009. In 2018, Bloomberg registered as a Democrat and in November of 2019 his announced he was running for president.

The topic of cannabis was first addressed publicly by Bloomberg in 2001, when he was asked in an interview if he had smoked marijuana. Bloomberg replied: “You bet I did. And I enjoyed it.”

Despite this lighthearted admission, Bloomberg was opposed to marijuana legalization throughout the course of his mayoral career, in the past referring to cannabis as a “narcotic”, asserting that it reduces IQ, and refusing to acknowledge the possibility of its medicinal use. His time as mayor also coincided with a spike in arrests for cannabis possession. In fact, the number of arrests for possession under Bloomberg exceeded that of the previous three mayors combined. In 2011, Bloomberg also opposed a bill proposed by state senators that reduced the penalty for possession of small amounts of cannabis.

To his credit, Bloomberg softened his stance on marijuana a bit in 2012, when he vocally supported a proposal to end arrests for possessing marijuana in public view. In 2013, the then-mayor also supported a proposal that would change marijuana possession from a misdemeanor to a violation.

Bloomberg’s presidential campaign website presents his time as mayor as successful at criminal justice reform, citing reduced murder rates and reduced incarceration during his time as mayor. Arguably the most memorable aspect of Bloomberg’s mayorship, however, was the expansion of New York City’s “stop-and-frisk” program, which allowed police officers to detain and search members of the public without probable cause. This policing strategy undoubtedly resulted in many arrests and convictions for marijuana possession.

In 2013, a judge ruled that the implementation of this program by the NYPD to be unconstitutional, as blacks and Latinos were disproportionately frisked. Despite this express finding of racial profiling, Bloomberg long maintained his support for the program, vetoing policing reform bills as mayor and claiming that stop-and-frisk was an effective method of crime reduction years after he had left office. This past November, Bloomberg finally admitted that stop-and-frisk had done more harm than good, but this apology comes far too late.

Conclusion: We award Bloomberg a “D-” grade because he does not support the legalization of marijuana and because of his history of anti-marijuana rhetoric and policies. As mayor of New York, Bloomberg actively obstructed attempts to reform the criminal justice system and fully supported a racist policing tactic, even after a judge ruled that its implementation had been unconstitutional.

california land use

Developers of cannabis projects in California want to turn projects around as quickly and cheaply as possible, and are frequently frustrated by the amount of time, money, and effort required for the entitlement process. On Wednesday, February 26, a panel of real estate development experts will explain the entitlement process in California at a LACBA panel moderated by our own Julie Hamill.

Julie will be joined by:

  • Amy Freilich, Partner at Armbruster Goldsmith & Delvac;
  • Larry Kosmont, CEO of Kosmont Companies; and
  • Corinne Verdery, Chief Development Officer at Caruso.

The panelists will describe the steps that a developer goes through to entitle a project, and how political strategies, community outreach, CEQA, and new development laws play into the process. Theses panelists are working on some of the biggest development projects in Southern California and will share their war stories, successes, and challenges with the audience in a guided discussion followed by audience Q&A.

This panel is for real estate practitioners, land use lawyers, developers, and students eager to learn more about how the mysterious world of land use really works. The panel is not tailored specifically toward the cannabis industry, but will be worthwhile for anyone interested in development in this or any other industry in California. Registration information is available here.

united kingdom cbd food

Last week, the Food Standard Agency (“FSA”), the agency responsible for protecting public health in relation to food in England, Wales and Northern Ireland (collectively, the “UK”), cleared a path for the sale of CBD-infused food for the next 12 months.

Specifically, the FSA is giving the CBD industry until March 31, 2021 to submit valid novel food authorization applications to ensure these products meet specific safety standards. Following the March 31, 2021 deadline, only products for which a valid application has been submitted will be allowed to remain on the market.

Although the UK recently severed its ties with the European Union, the FSA has opted to align its policy with that of the European Food Safety Authority (“EFSA”). The EFSA guidance on cannabinoids strongly echoes the U.S. Food and Drug Administration (“FDA”)’s in that it mandates that all food products infused with hemp or its derivatives receive a pre-market approval under the European Union “novel food” regulation because these products were not significantly used as a food or food ingredient before May 15, 1997.

According to the reporting of Hemp Industry Daily, CBD companies wishing to sell into the UK market will send approval plans to the EFSA through the end of 2020, at which point all applications will be transferred to the FSA.

So for now, the sale of CBD-infused foods is lawful in the UK so long as these products are:

  1. Properly labeled, including free of health claims;
  2. Safe to consume; and
  3. Do not contain THC or other controlled substances.

Despite the fact that the FSA gave the green light on the sale of CBD-infused foods, the agency also warned consumers about its potential side effects.

Based on a scientific report issued by the country’s Committee on Toxicity of Chemicals in Food, Consumer Products and the Environment (“COT”), the FSA guidelines warn pregnant and nursing women “not to consume CBD products” and recommends that healthy adults limit their daily dosage to no more than 70 milligrams, which is the equivalent of 28 drops of 5% CBD oil.

After reviewed scientific data of Epidiolex previously used by European and foreign health authorities, including the FDA, for the approval of the drug, the COT concluded that because the data was intended for pharmaceutical and not over-the-counter use, the “trade-off between risks and benefits that does not apply to food.”

Therefore, in drafting this new policy, the FSA opted for a pragmatic approach that balances the consumer demand for CBD-infused food products with the protection of public health and provides much needed clarification about the legality of selling and marketing CBD-infused foods.

That being said, the guidelines also create some serious challenges for the industry. Indeed, the novel food application process is a demanding and onerous process. Unless a blanket authorization will cover each end-form of CBD (this issue has yet to be clarified by the FSA), this would mean that only a handful of CBD companies could afford applying. This, in turn, would consolidate these products and offer a monopoly to the companies that manage to secure an approval.

Nevertheless, the FSA guidelines are a step in the right direction because they  encourage the Hemp-CBD industry to work together, educate and advise, but also set an example for other regulatory agencies, including the FDA, in forging a clear path for the sale and marketing of these products around the globe.

kern county cannabis marijuana

Last week, I presented oral argument to the Fifth District Court of Appeal in support of the people’s right of referendum. Long story short, the Kern County Board of Supervisors banned medical marijuana dispensaries in 2011, the people protested via referendum petition, and to this day the County has refused to comply with the legal mandate to submit the ban to voters before giving it effect. The County contends that they may reenact a protested ordinance after the passage of time; however, neither the California Constitution nor the Elections Code allow for such limitation on the people’s right to referendum.

The Court of Appeal granted our motion for calendar preference in light of the upcoming March election, at which the people and the Board of Supervisors have submitted competing ballot measures on medical marijuana for consideration by the voters.

Measure D is a people’s initiative measure, meaning it originated with the people, and will be submitted to a vote of the people. If and when the people adopt this measure (it would need to get more votes than Measure E), the Kern County Board of Supervisors will not have the ability to amend or repeal it. In other words, the Kern County electorate would gain control over the issue.

Enter Measure E. The County Board has demonstrated over the past decade that it is unwilling to relinquish control over the issue of medical marijuana, and has persistently interferes with the will of the voters. Upon the qualification of Measure D for the ballot, the County Board cooked up Measure E, which would give the Board full control over the issue. If the voters approve Measure E, the Board could amend or repeal it at any time in the future.

The Board’s agenda, as shown through its actions over the past decade, is to continue to ban medical cannabis in Kern County. The Board’s proposal of Measure E is yet another maneuver to silence the voices of the electorate and maintain control over the issue.

The initiative and referendum are powerful direct democratic tools reserved to Californians to use when their institutions are unresponsive. Measure D is the people’s way of taking control on this issue and giving power their voices. We believe the voters in Kern County are smart enough to see through the County’s intentions with Measure E, and expect it to be rejected in March.

psilocybin cannabis

There is a bona fide movement underway with psilocybin. Decriminalization occurred last year in Denver, Oakland and Santa Cruz, and that was just a start: nearly 100 other cities are looking at decriminalizing psychedelics. At the state level, ballot measures are out for signature in California and Oregon. Federally, legislation has been proposed to allow research into psychedelic drugs, alongside calls for decriminalization.

On the commercial side, well-funded private companies (for- and non-profit) are pushing ahead with Food and Drug Administration (FDA) psilocybin studies, patent acquisition, and registration of other intellectual property. Many of these private companies are set to go public. Others are public already. All in all, a race is underway to explore the attributes of psychedelic mushrooms and to leverage their promise in commercial applications.

Because psilocybin and other entheogens are Schedule I drugs in the United States (and strictly controlled under international law), the comparison is often made between what is happening with psilocybin and what happened with marijuana over the past few decades. It’s not a terrible comparison, but it’s not perfect either. Below is a high-level survey of psilocybin, contrasting the lay of the land with historical cannabis progress.

Like cannabis, psilocybin will advance on two tracks

On the first track, psilocybin is moving ahead via initiatives and initiated ordinances, just like marijuana from 1996 to the present. The scope of the psilocybin initiatives is similar to the early marijuana ballot measures in that they focus primarily on decriminalization. These initiatives do not contemplate a commercial model and it seems unlikely that they will be lucrative. They certainly do not yet resemble the second wave of “retail model” initiatives that became standard with medical and adult use cannabis. Mushrooms and cannabis are very different in nature.

The second track for psilocybin is the pharmaceutical model. We also saw this with cannabis, first with synthetic drugs and then with Epidiolex (the first non-synthetic cannabis drug to win FDA approval). With psilocybin, this second track is moving faster. The FDA already has granted “breakthrough therapy” status to a pair of psilocybin applicants for depression-related formulas, after approving another antidepressant designed to mimic hallucinogenic ketamine last year.

On those tracks, psilocybin will advance slower (and faster) than cannabis

Psilocybin will continue to be decriminalized around the United States in 2020 and beyond. But that is not the same thing as broad legalization. The closest we may get to “legalization” will be in proposals such as Oregon’s Measure 34, which goes beyond mere decriminalization to create a state-sanctioned “patient and caregiver” framework. This type of proposal envisions psilocybin-assisted therapy in controlled environments. It rules out the retail model entirely.

On the pharmaceutical side, the FDA’s willingness to grant breakthrough therapy status to psychedelic drugs, as mentioned above, has put psilocybin approvals in an expeditious place. Research companies, along with FDA, are seemingly “all in” on psilocybin’s potential in battling treatment-resistant depression. The funding and sophistication required are definitely there.

This targeted pharmaceutical approach will serve psilocybin promoters well, as contrasted with cannabis, which has been touted broadly and amorphously for every use from chronic pain to Alzheimer’s disease. Expect psilocybin to move more quickly than cannabis on the pharma track. Concurrently, expect the groundswell of broader “legalization” efforts to continue, even if we never see psychedelics sold at retail.

Cannabis legalization helped pave the way for psilocybin

Any legal right of adults to decide what to put into their own bodies must be re-litigated with every controlled substance. That was true 100 years ago with alcohol, it’s true with cannabis, and it’s going to be true with psychedelics going forward. Much of this litigation happens in the court of public opinion. People begin to believe that prohibition is useless, that incarcerating people for using drugs is wrong and that new rules are needed. This is how we ended up with laws from the 21st Amendment to the U.S. Constitution (1933), to California’s Proposition 215 (1996) to Oregon’s proposed Measure 34 (2020).

For at least several years, most Americans have supported the medical use of psychedelic drugs. As I previously discussed in a close reading of Oregon’s proposed Measure 34, the “legalization” model is similar to the trail blazed by locally cannabis. When enough cities and states move along the continuum from prohibition to decriminalization and beyond, the legal status quo becomes untenable. People will push this hard; people will try things. At some point, federal policy finally evolves and change becomes inevitable. All of that should happen this decade with psilocybin.

As in the cannabis space, we are fortunate to have clients working on the both the research/commercial side of psilocybin, as well as decriminalization. And we will continue to chart developments with psychedelics in general as things progress. Until then, and for more on psilocybin, check out the following posts:

trump cannabis marijuana

At this point, it probably feels to most people like the federal government is standing down when it comes to state-legal cannabis and cannabis businesses. It started back in 2013 with the Cole Memo when U.S. Deputy Attorney General James M. Cole opined in a memorandum that U.S. attorneys shouldn’t really prioritize federally illegal cannabis activities in states that robustly regulated cannabis and cannabis businesses (so long as eight main enforcement priorities were honored by the states).

This hands off approach was amplified by the 2014 FinCEN guidelines, which opened the doors on cannabis banking, a huge, positive development for the industry at the time. Then there was a bit of a downturn in January 2018 when then acting U.S. Attorney General rescinded all Department of Justice (DOJ) guidance (including the 2013 Cole Memo) regarding any federal enforcement position on state legal cannabis, fully returning to all U.S. Attorneys to go after state-legal cannabis according to the resources and priorities in their own jurisdictions.

Notably, none of the foregoing had any impact on actual federal law–enforcement memos do not represent changes in law and don’t do anything to amend the law. However, way back in 2014, Congress passed on omnibus budget bill that contained hard-fought-for language around protections for state medical cannabis laws. Section 538 of this budget bill contained the following language:

None of the funds made available in this Act to the Department of Justice may be used, with respect to the States of Alabama, Alaska, Arizona, California, [every other medical marijuana state], to prevent such States from implementing their own State laws that authorize the use, distribution, possession, or cultivation of medical marijuana.

Many legal experts and scholars speculated that Section 538 wouldn’t have too much of an impact on state legal medical cannabis businesses since the exact language, on its face, really only stops the DOJ from spending money on “interfering” with the enumerated states’ ability to implement their medical cannabis programs (notably, the law ignores adult-use cannabis programs and businesses).

Nonetheless, Section 538 proved to be hugely important in the Ninth Circuit courts of the United States (which make up a large portion of the medical cannabis states in America). The impact of the United States v. McIntosh cannot be overstated.  The Ninth Circuit Court of Appeals interpreted Section 538 to mean that the DOJ could not prosecute the individual principals of state law-compliant medical cannabis businesses. And the effect of that case produced the result in the MAMM case, the notorious Kettle Falls Five case, and was very likely responsible for the DOJ’s dismissal of the Harborside forfeiture case. The bottom line? Section 538 has real power to protect medical cannabis businesses from enforcement actions by the federal government.

Congress has consistently renewed Section 538 in some form in its annual budget bills (it’s changed names a couple of times from the Rohrabacher-Farr Amendment to the Rohrbacher-Blumenauer Amendment, named for the Congressional leaders who championed it and continued to keep it alive). Now though, Section 538 faces a new threat of elimination by President Trump, indicating that maybe the Feds aren’t really done with state-legal cannabis enforcement.

Notably, Trump has tried to delete Section 538 before (and so did Obama) but he’s been routinely ignored by Congress. In his 2021 budget proposal, Trump is at it again–section 538 is omitted from the white houses’s budget proposal. Only time will tell if members of Congress will fight against the proposed deletion. We imagine that they will, given the number of Americans that are now in favor of cannabis legalization generally and where hundreds of jobs and robust state revenue has been created on the back of cannabis legalization– including for medical applications.

The other positive boon here is the fact that the sitting U.S. Attorney, Bill Barr, made clear when testifying before Congress that spending time, money, and resources going after state-legal cannabis businesses isn’t really within the DOJ’s current interests, and that the DOJ would continue to adhere to the principles contained in the 2013 Cole Memo (so far, that seems to have held true).

It’s troublesome to see Trump go back and forth on medical cannabis (and legalization) and to watch him try to end the only real federal protection that exists for any form of cannabis business in the country. What’s clear to us though is that cannabis enforcement isn’t necessarily a priority one way or the other for this administration, and we can’t know yet if that’s ultimately a good or a bad thing. So, stay tuned.

cannabis oral agreement

A lawyer I know once told me that the primary motivation behind drafting a contract should not be making each party’s obligations clear or negotiating better terms, but instead should be ensuring that when there is litigation,  that party is in the best possible position to win. Having written and litigated numerous contracts, I could not agree more. There is so much that parties can miss if they are not looking forward towards inevitable disputes. But an even better way to put oneself in a terrible position in a dispute (and to cause more disputes) is to do handshake deals.

For those of you who aren’t lawyers, there are two main types of contract: written contracts and oral agreements (i.e., handshake deals). There can also be some kinds of implied contracts, but I won’t get into that here. Decades ago, people did not enter into written cannabis agreements for very obvious reasons. But from a modern lawyer’s point of view, there are almost zero circumstances in which parties should still enter into oral agreements. In fact, there are numerous reasons why parties should not do so, and I’ll flag some of the more important ones below. All in all, I would be suspect of anyone saying “you don’t need a contract for this deal”.

First, oral agreements are not enforceable in many circumstances. There is a very old legal doctrine called the “statute of frauds”, which all or nearly all states have adopted, and which lists certain kinds of contracts that are not enforceable unless in writing. In California, for example, the statute of frauds includes contracts that can’t be performed in a year (goodbye multi-year terms in handshake deals), leases with more than one year terms, contracts for the sale of real property or an interest in real property, etc. This can be a huge problem for people who have handshake deals who may learn too late that they have no recourse in the courts in a dispute.

Second, they will cost tons of time and money. One thing I’ve heard many times before is that it will be much more expensive to have a lawyer draft X type of contract than just to get started on work. What most non-lawyers don’t think about is how much the inevitable blow back will be if they use an oral agreement. Because the terms aren’t set out in writing, and because people generally have terrible memories, the likelihood of disputes over what the parties are actually supposed to do under a handshake deal are much, much higher. In some cases, disputes are virtually guaranteed.

To that point, if a party under a handshake deal has to sue the other party, the litigation will be much more complicated. In every kind of breach of contract suit, the party alleging breach has to prove the existence of a contract. It’s very easy to do if there is a written contract: generally, you just produce and properly authenticate the contract. If the deal is a handshake one, you will have to have people testify about (1) the fact that there was an agreement, and (2) what the terms were. And the other side is almost guaranteed to testify that the terms were different or that the contract was never made. Sure, parties can dispute the existence or validity of written contracts (someone could claim their signature was forged, for example), but the existence/validity of a contract is rarely at issue in those cases because you can look at and hold a written contract and evaluate such claims pretty easily.

Third, you don’t get to recover any attorneys’ fees! The general rule in the U.S. is that each party bears its own attorneys’ fees in litigation. In other words, you pay your lawyer for litigating your dispute, whether your win or lose. Some laws will force the losing party to pay the other party’s attorneys’ fees (for example, in some trade secret cases). But for straight breach of contract cases, the only way to get your fees paid back if you win, in most cases, is to have an attorneys’ fees provision in the contract. I have never once heard a party legitimately trying to claim that their handshake deal included an attorneys’ fees provision; in fact, that would be a guaranteed way to lose face in front of a court.

Fourth, and along the same lines, no arbitration. I just wrote a post about why arbitration is such a good idea for cannabis companies. The gist is that arbitration avoids going to federal court, where the court is much more likely to toss a case on the grounds that cannabis is federally illegal. Parties generally cannot be forced into arbitration unless they agree to it, either at the point of a dispute being initiated (the party who would benefit from getting the case thrown out would never do this), or in a written contract. Here too, I have never heard of someone arguing that there was an oral agreement to arbitrate.

Fifth, good luck complying with the regulations! Every state’s broad cannabis regulations touch virtually every part of a business’ operations. It is always good practice to address the things that the parties must do or cannot do to comply with the regs in a written contract. For example, if a contract would render parties owners or financial interest holders in a licensed cannabis business, it’s a good idea for the contract to obligate that party to make disclosures. Without it, the party could refuse to do so and jeopardize the other party’s license. If the parties enter into handshake deals, there is virtually no visibility into regulatory compliance. It’s probably not a good defense to an enforcement action that a contract wasn’t written and a licensee was confused as to how they should comply.

All of this is to say, oral contracts are a bad idea. Parties don’t need to have 80-page deals for every minor transaction, but getting something down in writing almost always helps. That said, I do plan to write a post in the near future about how it can be equally terrible to have a contract that is too short. There is a healthy balance when it comes to contract drafting, but the main point is that almost all problems inherent in oral contracts can be avoided, and in many cases very easily.

For more on this under-discussed but very important issue, check out the following: