Cannabis Case Summaries

cannabis patent litigation
Did UCANN really get USTPO coverage for prior art?

About six months ago, we posted news of the first ever cannabis patent infringement case.  As a reminder, the case was initiated by United Cannabis Corporation (“UCANN”) in the United States District Court, District of Colorado against its in-state competitor, Pure Hemp Collective Inc. (“Pure Hemp”). The subject patent is U.S.P. 9,730,911 – “cannabis extracts and methods of preparing and using same,” which generally covers liquid cannabinol formulations using tetrahydrocannabinol (THC), cannabidiol (CBD), and various terpenes (the “911 Patent”).

Just six months into litigation, Pure Hemp has already responded by filing a Counterclaim and Motion for Partial Summary Judgment, which has yet to be heard. These filings have already raised several issues of first impression. While we plan to cover each of these issues on the blog, perhaps the most fascinating question relates to Pure Hemp’s prior art arguments, which could effectively invalidate UCANN’s 911 Patent altogether.

First, let’s back up with a high-level overview of the term “prior art.” In order to successfully obtain a patent, U.S. patent law requires the applicant to demonstrate that the invention attempting to be claimed is both (1) novel, and (2) nonobvious. Both these factors can be overcome by what is known as prior art – public knowledge, usage, or other types of disclosures. The European Patent Office puts it succinctly: “Prior art is any evidence that your invention is already known.”

Here, one of the key issues to be determined is whether the 911 Patent is obvious and could not be considered novel given the long-standing science and technology relating to cannabis extraction and preparation. In its filings, Pure Hemp makes that exact point by arguing that highly concentrated liquid CBD formulations are “ubiquitous” and “were not invented in this millennium.” One of Pure Hemp’s attorneys, Donnie Emmi, was quoted as saying he believed Pure Hemp had a good chance of invalidating UCANN’s 911 Patent if the Court agreed with their analysis.

Of course, it remains to be seen exactly what Pure Hemp plans to offer in support of its prior art argument. Typically, defendants in patent litigation produce years, sometimes decades, of scientific articles and other writings to demonstrate a given industry’s preexisting research and knowledge. It’s clear this wealth of evidence likely doesn’t exist for Pure Hemp given the general illegality of marijuana to date. This means the prior art could definitely be out there, but hard to definitively prove given that it was driven underground.

It’s also clear that that is about to drastically change for the cannabis industry. With marijuana now partially legalized in thirty-three states, each and every business is clamoring to get its newest formulations of cannabis patented before a competitor. The number of patents issued by the U.S. Patent and Trademark Office has more than quadrupled since 2016. It’s also worth noting that the parties are represented by reputable patent attorneys, and the Court seems to be paying close attention. This case will no doubt clarify and shape the field of cannabis patent litigation for years to come. Stay tuned!

supreme court 8th amendment forfeiture cannabis

The United States Supreme Court issued a unanimous ruling on Wednesday in the case of Timbs v. Indiana, incorporating the Eighth Amendment’s Excessive Fines Clause against the states through the Due Process Clause of the Fourteenth Amendment. As we have written about, the case involves the forfeiture of petitioner’s Land Rover as punishment for selling heroin. The Indiana Court of Appeal held that the forfeiture of the Land Rover was grossly disproportionate to the gravity of the offense, and the Supreme Court of Indiana reversed and concluded that because states are not subject to the Excessive Fines Clause, the forfeiture was not unconstitutional. In a sweeping decision authored by Ruth Bader Ginsburg, the United States Supreme Court flatly rejected that contention.

The decision is an expansion of the federal Constitution to apply against state and local governments, and it means that all state and local asset forfeiture regimes could be subject to challenge insofar as they allow for forfeitures that are “excessive” under the Eighth Amendment. That includes forfeitures related to cannabis activity. According to the decision,

… the historical and logical case for concluding that the Fourteenth Amendment incorporates the Excessive Fines Clause is overwhelming. Protection against excessive punitive economic sanctions secured by the Clause is, to repeat, both ‘fundamental to our scheme of ordered liberty’ and ‘deeply rooted in this Nation’s history and tradition.’

The decision is being hailed as a victory for criminal justice reform. It strengthens property rights and could limit controversial police seizures such as those done through civil forfeiture nationwide. The decision will have nationwide impacts for those accused of drug crimes and other offenses, and will be an important check on the government’s power to interfere with private property. This is great news for the cannabis industry, and will provide additional legal support for our clients who have had their property seized or threatened to be seized by state and local governments.

For more background on this issue, check out the following:

idaho hemp cannabis seize

Earlier this week, I wrote about how hemp businesses should not yet rely on the 2018 Farm Bill to protect them from their products being seized. This is because although Section 10114 of the 2018 Farm Bill prohibits states from interfering with the interstate transport of hemp and hemp products, that protection is limited to hemp that was cultivated in accordance with Section 10113 of the 2018 Farm Bill. At this time, full compliance with Section 10113 is not possible because the US Department of Agriculture (“USDA”) has yet to approve of any state or tribal plans covering the cultivation of hemp or issue its own plan allowing for the cultivation of hemp in states that do not have an approved plan.

As such, the cultivation of hemp is still governed by the 2014 Farm Bill, which allows state departments of agriculture to license the cultivation of industrial hemp. States have taken a widely different approach to regulating industrial hemp and not all states recognize any difference between industrial hemp and marijuana, regardless of the amount of THC present.

Back in September 2018, I wrote about how varying state laws made it challenging to ship hemp products, including hemp-derived CBD (“Hemp-CBD”) across the country. I used the following example to illustrate the risks:

[B]usinesses must carefully consider how their products reach consumers. For example, imagine that Hemp Co. is planning to distribute Hemp-CBD. Hemp Co. sources its industrial hemp from a farm in Medford, a small town in Southern Oregon. Hemp Co. has a large order to fill for a natural food store in Billings, Montana. Hemp Co. decides that the fastest and cheapest method of delivery is ground shipping through Idaho. However, according to a 2015 informal opinion from the Idaho Attorney General,  the state makes no distinction between industrial hemp and marijuana. Therefore, Hemp-CBD, even without the presence of THC, is not permitted in Idaho. Even though Hemp Co.’s products come from a farmer who cultivates in-line with Oregon’s industrial hemp program (and relevant federal law), that does not insulate Hemp Co. from liability if the shipment is inspected by Idaho State Police.

Unfortunately, this hypothetical now appears to be playing out in real life as the Idaho State Police recently seized a shipment of industrial hemp traveling from Oregon to Aurora, Colorado.

Big Sky is a Colorado company that processes hemp into CBD powder which it then sells to manufacturers who add CBD to a number of different consumer products. Big Sky purchased 13,000 pounds of hemp from a permitted hemp cultivator in Oregon. Big Sky contracted with a third party logistics company to have the hemp shipped from Oregon to Aurora, Colorado.

On January 24, 2019, a truck carrying the hemp was stopped in Ada County, Idaho. The driver did not conceal the fact that he was shipping hemp and a bill of lading that accompanied the shipment indicated that the cargo was hemp. The Driver was arrested and charged with marijuana trafficking in Idaho state court. The Idaho State Police seized the contents of the truck: 7,000 pounds of industrial hemp.

Big Sky’s attorneys filed suit in US District Court in Idaho. Big Sky is seeking a declaratory judgment stating that Idaho Police improperly seized Big Sky’s properly and are improperly holding the property in light of the 2018 Farm Bill’s prohibition on the interstate shipment of hemp and general principles under the Commerce Clause which prohibit states from interfering with the interstate shipment of lawful goods. Big Sky also filed a motion for a temporary restraining order (TRO) and preliminary injunction to force the Idaho State Police to immediately return the seized hemp.

In order to get emergency relief in the form of an injunction or TRO, a party must show that they are likely to succeed on the merits of the underlying case. The Court determined that Big Sky had not met this burden because it is unclear whether Section 10144 of the 2018 Farm Bill covers the seized hemp at issue. The Order denying Big Sky’s claims states the following;

The takeaway from an examination of the respective arguments of Big Sky and the [Idaho State Police] is that a reasonable argument can be made that even though Big Sky may, at some point in time, be able to purchase industrial hemp that has been “produced in accordance with Subtitle G,” the hemp that was seized in Idaho could not possibly meet that standard because no “plans” to regulate the production of industrial hemp under the 2018 Farm Act have either been approved (by the federal government as to Oregon, as pertinent here) or created and promulgated by the United States Department of Agriculture for the federal government (to apply in the absence of an approved state or tribal plan).
To clarify, the Court is not ruling on the question of whether Big Sky was afforded protection under Section 10114 of the 2018 Farm Bill. Instead, it is saying that Big Sky has not yet shown a high likelihood that it prevail on the merits and therefore it is not entitled to have the seized hemp returned now. The Court has, however, identified that it is not clear that the 2018 Farm Bill prevents states from interfering with the interstate transport of hemp grown under the 2014 Farm Bill.
Big Sky will no doubt argue that the 2018 Farm Bill does prevent Idaho from interfering with this shipment. Though it is true that the Section 10114 does not explicitly cover hemp grown under the 2014 Farm Bill, it seems fair to say that the intent of Congress is to have hemp treated like an agricultural commodity, not a controlled substance. Additionally, Big Sky’s attorneys can expand their arguments that Idaho is interfering with interstate commerce, an area that is traditionally only to be regulated by Congress under the Commerce Clause of the US Constitution.
We’ll continue to monitor Big Sky’s case against the Idaho State Police. In the meantime, be very careful about how you ship hemp products.

cannabis trademark infringementAs ardent followers of this blog are well aware, one of my favorite pastimes is keeping tabs on who is suing whom in the cannabis industry for trademark infringement. These lawsuits serve as great examples for my clients of what NOT to do when choosing a brand for their company. The last couple of years have provided a couple of big-name cannabis trademark lawsuits, including the Gorilla Glue dispute and the Tapatio Foods lawsuit.

This time, it’s the United Parcel Service (UPS) suing a group of cannabis delivery companies for trademark infringement. The lawsuit was filed in the U.S. District Court for the Central District of California on February 13, 2019 and alleges trademark infringement against United Pot Smokers, UPS420, and THCPlant, all of which market and sell cannabis products. These companies, according to the complaint, offer delivery and logistics services via the websites www.upsgreen.com and www.ups420.com.

In its complaint, UPS accuses the defendants of infringing its family of trademarks, which includes its famous shield logo, and states that the defendants “intended to capitalize off UPS’s extensive goodwill and reputation.” UPS allegedly sent multiple cease and desist letters to the defendants, which were unwisely ignored.

The lawsuit includes claims for trademark infringement, trademark dilution, false designation of origin, deceptive advertising, and unfair business practices, and includes a request for damages, an end to defendants’ infringement, and control over defendants’ websites.

We’ve made this point many times before, but it warrants repeating: Cannabis companies are not immune from trademark infringement claims, and must choose brands that do not infringe the rights of third parties, including third parties outside of the cannabis industry. For ease of reference, here are several past blog posts relating to trademark infringement, and how to choose a brand that won’t get you sued:

And here are the factors a court will consider in assessing whether one mark is likely to be confused with another, proving trademark infringement (AMF Inc. v. Sleekcraft Boats):

  • Strength of the mark;
  • Proximity of the goods;
  • Similarity of the marks;
  • Evidence of actual confusion;
  • Marketing channels used;
  • Type of goods and degree of care likely to be exercised by the purchaser;
  • Defendant’s intent in selecting the mark; and
  • Likelihood of expansion of the product lines.

The two most basic factors I recommend our cannabis clients evaluate before they select a brand are 1) is your mark similar to or the same as an existing mark, and 2) are you intentionally “riffing” off an existing brand? Remember that parody is not a defense to trademark infringement that will typically fly in a commercial setting. When you choose a mark as a “parody” of an existing brand, chances are you’re actually infringing a registered trademark, and possibly diluting a famous mark, which is exactly what is alleged here, in the UPS case. And the fact that you knew of the senior trademark would absolutely play against you in litigation, as your infringement would be deemed willful.

These two factors are only the beginning of the analysis. There are instances where similar, or even the same brand names can coexist if the goods those brands are used on are completely different and marketed through separate channels to disparate groups of consumers. The analysis for likelihood of confusion can be quite complex.

Before adopting a new brand name, we recommend consulting with an experienced trademark attorney and we also recommend having them perform a trademark clearance search to ensure your brand won’t be infringing any existing registrations.

sonoma county cannabis RICOFor a while, criminal conspiracy lawsuits against cannabis operations looked like a potentially promising strategy for cannabis prohibitionists to try and use litigation to reverse the trend of legalization. The idea is to use the Racketeer Influenced and Corrupt Organizations Act (“RICO”), a federal statute intended to combat organized crime–and which allows private rights of action for lost property value resulting from criminal operations–to enjoin cannabis operations and recover damages to force the operators out of business. The typical set of facts is that a residential neighbor plaintiff claims that his or her property value is damaged by the existence of a nearby cannabis operation, usually outdoor cultivation, and names as a defendant every single person and business that had any conceivable connection to that operation.

There were a handful of relative successes with this strategy early on, culminating in a 10th Circuit Court of Appeals decision allowing a RICO claim against cannabis cultivators to move forward on a theory of diminished property value. However, that victory was soon followed by a resounding defeat in a jury verdict finding no such diminution of property value. Subsequent U.S. District Court decisions from Oregon continued the backward slide, finding that although the residential neighbor plaintiffs might have potential personal injury claims for nuisance, they were unable as a matter of law to demonstrate a plausible claim for injury to the value of their property.

That trend has now found a secure foothold in California, where a San Francisco federal court recently dismissed a lawsuit by residential plaintiffs in Sonoma County alleging RICO claims against a neighboring cannabis cultivator. While the court acknowledged that the plaintiffs could potentially move forward with their claims for “diminished sense of serenity” and various “cleaning, medical, legal, and other expenses,” it found those damages would have to be pursued though traditional state law nuisance claims, not federal RICO claims, noting that “RICO was intended to combat organized crime, not to provide a federal cause of action and treble damages to every tort plaintiff.” Ouch.

Furthermore, California law added another unique element to the court’s decision. Although California recognizes claims for diminution in the market value of their homes, including prospective future losses, and such losses could potentially be compensable under RICO, under California law, “a plaintiff in a continuing nuisance case may not recover diminution in value damages because the plaintiff would obtain a double recovery if she could recover for the depreciation in value and also have the cause of that depreciation removed.” And in this case, the court found that the alleged cannabis cultivation issues would be better classified as a continuing nuisance and that the defendants had already abated the nuisance while the lawsuit was pending. Therefore, the plaintiffs’ property loss claims were effectively moot.

In the end, although the defendants prevailed on the motion to dismiss, the case was more of a pyrrhic victory because the defendants had to shut down, as they were not properly permitted by the county or licensed by the state, and the court granted leave to amend the complaint to still allow the nuisance claims to proceed. But at least in terms of the viability of RICO lawsuits as a tool to reverse cannabis voter initiatives, this was another nail in the coffin.

For more on RICO cannabis litigation, check out the following posts in our series:

Pay those employees, non-exempt and otherwise.

I recently wrote about a case in the Tenth Circuit, Kenney v. Helix TCS, Inc., where the Court of Appeals is asked to decide if the Federal Labor Standards act (FLSA) provides wage and hour protection to employees of cannabis businesses. That case hasn’t seen much movement since I wrote about it, but its decision could have a significant impact on a case recently filed in Federal District Court in Oregon.

Michael Garity has filed a state and FLSA wage and hour claim against his former employer, WRD Investments LLC (“WRD Investments”). According to the complaint, Mr. Garity was hired by WRD Investments to provide expertise and labor in support of WRD Investments’ marijuana grow near Junction City, Oregon.

Mr. Garity alleges he was a “non-exempt” employee for WRD Investments. His status as a non-exempt employee would have required WRD Investments to pay Mr. Garity at least minimum wage for all hours worked and overtime rates for all hours worked over 40 hours per week. In the complaint, Mr. Garity alleges that between March 2016 through May 2017 he may have worked approximately 2500 hours without any compensation. He further alleges that he frequently worked over 40 hours per week without overtime pay.

Mr. Garity’s complaints do not stop there. Mr. Garity also alleges that WRD Investments failed to provide him with itemized statement of pay and failed to establishe regular pay days in violation of Oregon laws. The Complaint also states Mr. Garity incurred expenses on behalf of WRD Investments such as using his personal vehicle to conduct WRD Investment business without reimbursement from WRD Investments.

Mr. Garity’s complaint requests actual damages for unpaid minimum wage and overtime compensation plus an equal amount as liquidated damages and reimbursement for business related expenses, penalty wages under Oregon wage and hour laws, and attorney fees and costs. Mr. Garity’s complaint does not lay out a number, but based on my calculations WRD Investments could be on the hook for around $40,000 related to the FLSA claims alone. Should this matter proceed far into litigation, WRD Investments could also be on the hook for attorney fees which could eventually surpass the $40,000 number.

The Kenney case mentioned at the beginning of this post may have significant impact on Mr. Garity’s claims. Mr. Garity’s case is filed in a Ninth Circuit district court and nothing binds a Ninth Circuit court to follow a decision from the Tenth Circuit. However, the Ninth Circuit district court could be persuaded by the Tenth Circuit Court of Appeals decision and decide to follow its precedent. Alternatively, it could choose to ignore the precedent and decide to create its own path. Either way, it will be very interesting to see the legal arguments that are made in Mr. Garity’s case regarding whether the FLSA protects marijuana employees.

Regardless, a good lesson can be gleaned from Mr. Garity’s complaint. First, be sure you are properly classifying your employees as exempt or non-exempt. Second, and perhaps even more importantly, ensure that you are properly paying your employees. If you are ever concerned you are in violation of wage and hour laws, its always a good idea to have a cannabis employment law attorney review your payment procedures. It may cost some money up front but will likely save you much, much more in the long run.

cannabis management company 280EOn December 20th, U.S. Tax Court issued its opinion in Alternative Health Care Advocates et al. v. Commissioner of Internal Revenue. The long opinion details various issues related to the specific case, but we will concentrate on one relatively small piece of it. How would the Tax Court treat income paid from a marijuana retailer to a management services company for that retailer?

In this case, Alternative Health Care Advocates provided medical marijuana to individuals in California under California law. Another company, Wellness Management Group, Inc., provided management services to Alternative Health Advocates. These services included hiring employees and managing HR for those employees, paying wages for those employees, paying advertising expenses, paying rent, etc. Wellness did not provide services of that nature or any nature to any other business entity. Wellness made money by collecting fees for its services from Alternative Health Care Advocates.

Under Section 280E of the Internal Revenue Code, businesses that are engaged in trafficking controlled substances cannot take regular business deductions, so they end up paying taxes on their gross receipts less their allowed cost of goods sold (COGS). If an expense doesn’t fit into the category of COGS, a company that is considered to be “trafficking” would have to pay taxes as if the expense hadn’t been incurred in the first place. This is how the effective tax rate for marijuana businesses can be outrageously high.

Marijuana businesses set up management companies for a few reasons. Tax avoidance under 280E can be one of them, but trying to set up a management company structure to avoid 280E-related tax problems can be complex and can backfire. Instead, most of the value of the management company model comes from the ability of the management company to get banking and enter into regular electronic transactions with third parties, including running payroll services.

But the model backfires if the management company is considered to be trafficking, because a management company introduces new transactions to the system involving the same pot of money. Imagine that a marijuana retail company generates $1 million and has $500,000 in 280E non-deductible expenses. That company standing alone would pay tax on the full $1 million. Now imagine that a management company is set up to handle the $500,000 in expenses and charges the marijuana company $500,000 to do so. The marijuana company now has $1 million in revenue and a non-deductible $500,000 bill to the management company and pays taxes on $1 million. The management company receives $500,000 from the marijuana company and pays salary and other expenses that also equal $500,000. If the management company is treated like any other business, the transaction is a wash and ends the same way as if there were no management company. If the management company is deemed to be “trafficking” however, then the marijuana business will find itself paying tax on both entities for the same revenue. The $500,000 paid to the management company ends up being taxed twice.

Unfortunately, the Tax Court decided that Wellness’s management activities were “trafficking” as much as Alternative Health Care Advocates’ activities were. In response to the taxpayers’ arguments that disallowing the 280E deductions for both businesses was inequitable, the Tax Court simply stated that the tax consequences were a direct result of the organizational structure the taxpayers put together.

Here are the takeaways for existing businesses, especially management companies. First, it’s worth noting that this case will likely be appealed, so keep an eye on that. Second, businesses have to plan their transactions involving management companies as if management company revenue is subject to 280E. Some management companies that offer broader services to a variety of different businesses may have some additional arguments that they are not engaged in “trafficking.” But if your management company is just a stand-in for your operating marijuana company, the Tax Court has indicated that it will approve of the IRS considering you to be trafficking as well. This case is one more reminder that Section 280E presents an ever-present obstacle to the ongoing health of marijuana businesses. Advocates must continue to concentrate their efforts to finally get Congress to repeal Section 280E.

fourth circuit marijuana illegal search
Nice work by the court!

The Fourth Circuit Court of Appeals ruled last week that finding marijuana stems in a trash bag does not permit the police to search the house for evidence of a crime. From a legal standpoint this case has interesting implications on when, where, and what police can search. From a more practical perspective, it shows the courts, along with the majority of America, are accepting that marijuana is not a dangerous substance.

The case, United State v. Tyrone Lyles, saw Mr. Lyles accused of possessing firearms as a convicted felon. The police of Prince George County (in Maryland, right outside of Washington, D.C.) were investigating Mr. Lyles in an unrelated case. They searched four trash bags on a curb near his house and found three marijuana stems. Based on the marijuana stems, the police obtained a search warrant for Mr. Lyle’s house. In the application for the search warrant the police stated they had found the marijuana stems, rolling papers and based on this believed that there were “controlled dangerous substances, Marijuana, and handguns being stored, used and/or sold” at Mr. Lyles home.

Based on this information, the police were granted a broad warrant and allowed to search Mr. Lyles home in total. The police, during the search, found four handguns, ammunition, marijuana, and drug paraphernalia, in Mr. Lyle’s house. Mr. Lyle asked that the evidence found in his home be suppressed because there was not sufficient evidence to search his home based on the discovery of three marijuana stems in his trash.

The Fourth Circuit agreed. The court, in its decision, first reiterated the fact that police have the right to search trash that that has been left at the curb and that evidence found in trash can be used to support a warrant to search other premises. The Fourth Circuit recognized, that while the police can search trash, that there is limitations to what can be presumed from the discovery of the evidence in the trash. Focusing on the facts from Mr. Lyles’s case, the Fourth Circuit determined there was simply too little marijuana found in the trash to presume that Mr. Lyle had more marijuana in his home. The Fourth Circuit agreed with Mr. Lyles that the tiny quantity of discarded residue gave no indication of how long ago marijuana may have been consumed in Mr. Lyle’s home.

So what does this mean? The police used marijuana as an excuse to search Mr. Lyle’s house for evidence of crimes related to marijuana, money laundering, and hand guns. The Fourth Circuit essentially said the police cannot presume that someone has committed crimes related to controlled substances or to other crimes when a small amount of the substance has been found in the trash. This is important because in other cases, the Fourth Circuit has determined that evidence of a controlled substance in someone’s trash is sufficient for a warrant to search that person’s house. Perhaps the distinction here is that such a small amount was found, or perhaps it is evidence that the federal courts are no longer considering marijuana a dangerous drug that is evidence of other crimes (what if they had found a small amount of heroin?).

It will be interesting to see if any of the other federal circuits follow the Fourth Circuit’s helpful precedent, or if prosecutors decide to appeal this decision to the Supreme Court.

class action marijuana cannabisMedMen, a popular California cannabis retail company, has been hit with a class action lawsuit from former employees. Class action lawsuits are no joke. These lawsuits involve a few plaintiffs suing on behalf of multiple similarly situated plaintiffs. The claims, money, and other associated costs add up very fast.

In MedMen’s case, two former employees, Chelsea Medlock and Anthony Torres, allege that MedMen failed to pay them for all hours worked, failed to pay overtime wages, failed to provide mandatory meal and rest breaks, and failed to keep accurate records of employees hours worked. Medlock and Torres worsened the blow by bringing the lawsuit as a class action on behalf of all MedMen employees (current and former) from the last four years. If the class is “certified” by the Superior Court of the State of California, where it was filed, the class of plaintiffs could include thousands of employees.

Specifically, Medlock and Torres allege MedMen required them to perform work “off-the-clock” for which they received no pay. Medlock and Torres are seeking minimum wage, liquidated damages, interest and attorney fees for the unpaid time. Although Medlock and Torres have not made specific allegations in the complaint, Starbucks was recently ordered to pay an employee $102.67 for the time the employee spent locking up the store and setting alarms, without compensation. While this amount may seem small, if Medlock and Torres get their class certified, MedMen could be paying out a similar amount or something much greater, to thousands of employees.

Medlock and Torres also allege in their lawsuit that MedMen failed to pay employees required overtime wages. In California, employers must pay overtime rates to non-exempt employees who work in excess of eight hours per day. Medlock and Torres also allege they either were not provided the required meal and rest periods, or were not paid for the meal periods they had to work during. Medlock and Torres have not identified specific dates these alleged violations occurred, but if done over a significant period of time, the back wages and penalities owed will add up quickly.

In addition to their claims relating to their wages, the plaintiffs allege they were not provided accurate wage and hour statements as required by the California Labor Code and failed to provide accurate payroll records. Failure to provide accurate wage and hour statements can result in a penalty of up to $4,000 per employee.

Finally, Medlock and Torres allege that MedMen failed to timely issue final paychecks. Failure to issue final paychecks can result in penalty wages of up to thirty days of pay at the employee regular rate of pay.

In short, Medlock and Torres’s claims are numerous and serious. If they have merit, MedMen will have to pay pack wages and may be hit with treble damages, attorney fees, and interest. Of more important, if the class is certified, MedMen will have to pay those types of damages to potentially every employee they employed in California over the last four years.

Cannabis companies are growing. With growing businesses come more employees. More employees means a higher chance of litigation. For these reasons, if you are ever unsure whether your employment practices are compliant with state and federal law, it is best to have a cannabis employment attorney evaluate and provide advice. You may be able to stave off litigation, or, if you are hit with a lawsuit, you’ll have procedures in place to adequately fight it before it gets too far.

marijuana montana employmentMedical marijuana is legal in Montana. Unfortunately, that does not prevent local employers from terminating workers for legal, off-work use of marijuana in the state.

In 2010, while already employed by Charter Communications, LLC, Lance Carlson was issued a medical marijuana card under Montana Medical Marijuana Act to treat chronic low back and stomach pain. The medical marijuana card allowed Mr. Carlson to legally use marijuana to treat the conditions. In 2016, Mr. Carlson was involved in a work-related motor-vehicle accident. A urinalysis that followed the accident tested positive for THC. Mr. Carlson was promptly terminated as a result of the drug test.

Mr. Carlson initially brought suit against his former employer in Montana state court, alleging the former employer had wrongfully terminated him in violation of the Discrimination Under the Montana Human Rights Act— specifically, that his employer had discriminated against him because of a disability. The case was removed to Federal District Court. Charter Communications quickly moved for a motion to dismiss arguing that the Montana Marijuana Act allowed them to terminate Mr. Carlson for his medical marijuana use. Mr. Carlson appealed the decision to the Ninth Circuit.

The Ninth Circuit, in an unpublished opinion, upheld the district court’s dismissal. The Ninth Circuit specifically relied on the carve-out of Montana’s medical marijuana act that states employers are allowed to prohibit employees from using marijuana. Mr. Carlson challenged that exact regulation as unconstitutional. However, the Ninth Circuit determined it was constitutional because it was “rationally related to Montana’s legitimate state interest in providing careful regulation of access to an otherwise illegal substance for the limited use by persons for whom there is little or no other effective alternative…”

Given the general trend for acceptance of marijuana, the Ninth Circuit decision is disappointing, even though it is unpublished and therefore sets no legal precedent. However, the problem does not generally lie with the Ninth Circuit, but instead with Montana’s state law. Now is the time to lobby Montana officials to have the Montana Medical Marijuana Act revised to protect employee’s off-work medical marijuana use.

Montana is not alone in allowing employers to terminate employee for their legal off-work use of marijuana. Oregon, similarly, has a statute that does not require employers to accommodate employees’ off-work use of medical marijuana. Way back in 2010, the Oregon Supreme Court ruled that the statute prohibiting disability discrimination in employment does not protect medical marijuana users. Washington’s laws do not require employers to accommodate employee’s medical marijuana use either. Colorado, another state on the forefront of adult use legalization, still allows employers to terminate employees for medical marijuana use, too.

While Oregon and California have struggled to pass legislation protecting employee’s off-work medical marijuana use, other states have managed. These laws typically create a carve-out for employers who contract with the federal government and therefore are required to have a drug-free workplace. Federal legislators also have recently introduced legislation  to protect off-work marijuana use. Currently the bipartisan bill is stalled in the Oversight and Government Reform Committee.

I suspect eventually the states discussed in this blog post will catch up with the changing of the times, but until then, be aware that many states allow employers to terminate employees for their legal use of marijuana—medical or otherwise.

Editor’s Note: This blog post first ran on December 6. We are re-publishing it here because a platform glitch erased the initial publication.