Cannabis Dispute? Courts are Open

Back in 2015, I wrote on this blog that we were never not litigating cannabis business disputes. That is still true today, although the forums have changed: matters are now resolved through the court system more frequently than before, when private arbitration was preferred. This is partly because the prevailing view among cannabis business attorneys is no longer to require arbitration in marijuana-related contracts, or to attempt to shepherd marijuana-related disputes into arbitration. These days, many of the agreements we draft stipulate court as the place to duke it out. This post gives a few reasons why.

Courts enforce cannabis contracts. This was always the biggest consideration in choosing a forum for cannabis disputes. A few months ago, we ran through a survey of federal courts and cannabis litigation, observing that none of the districts at issue were invalidating state-sanctioned businesses’ cannabis contracts on the dreaded “illegal purpose” basis. This trend is holding strong in recent federal court disputes on issues from RICO to patent infringement, despite the prohibited status of “marijuana” under federal law. As to state courts, the decisions declining to hear cannabis beefs are pretty far in the rearview. (Ironically, it has been safer overall to enforce cannabis contracts in federal courts that state courts to date.) When drafting agreements for cannabis clients, we still advise as to the diminishing possibility of non-enforcement, but most cannabis companies seem comfortable choosing court over arbitration if other goals are satisfied.

Publicity isn’t as big a deal anymore. In the old days, every time we filed a cannabis lawsuit in circuit or district court, reporters would call immediately. It’s generally not like that anymore — and that’s a good thing. The federal rhetoric has relaxed, hundreds of cannabis lawsuits have been filed, and people have come to accept cannabis businesses as similar to distilleries or dram shops in many regards. Industry participants also know that business ownership is a part of the public record from day 1. All of this means that the biggest “publicity” reason people may choose arbitration is to avoid regulatory scrutiny in the event of a dispute that could implicate licensing issues. But this consideration alone is often not determinative.

Arbitration may be neither faster nor cheaper than court.  Most cannabis businesses are small businesses and they want fast and cost-effective results. That does not mean arbitration is the best choice by default. Depending on the type of case, the arbitral body selected, the number of arbitrators on a matter, and other factors, court can actually be cheaper and faster than arbitration. This is particularly true in jurisdictions with reasonable dockets and straightforward local rules.

People like to appeal things (or think they can). Generally speaking, arbitral decisions are binding and cannot be appealed. If the arbitrator gets the law wrong, too bad! Her decision is going to be final. Court decisions, on the other hand, are subject to review and appeal in most cases when it comes to matters of law. Very few disputes go up on appeal (let alone to trial in the first place), but cannabis businesses, like everyone else, tend to think of arbitration as more limiting in this sense.

The bottom line here is that cannabis business lawyers should talk through forum options with clients, rather than insist upon arbitration in contracts or when disputes arise. Cautious attorneys might also consider drafting language into agreements to the effect that violation of federal marijuana laws, without more, is not a defense to claims arising from that contract. That type of provision is particularly apt where the cannabis outfit is more likely to seek contract enforcement than the service provider or ancillary business with which it has signed an agreement.