By: Gary Michael Smith, Esq.
As the current president of the Arizona Cannabis Bar Association, as well as having been a litigator for the past 25 years, I see and participate in a lot of court cases. Given the combined pressures of the scales of money involved, the vagaries of cultivation, IRS Regulation 280(e), Federal criminal law, and intense State regulation, ‘Marijuana Land’ unsurprisingly generates a lot of fights. A lot of fights. And trust me, what fights currently exist are a mere drop in the bucket compared to what is coming. As Federal laws eventually relax, a resultant flood of investment well beyond what we see today is apt to occur, bringing with it all the bad businesspeople, ill-conceived business plans, poorly-documented or altogether undocumented business agreements, scams, bad behaviors, and accidents one would expect from a rush of speculative investment in what many still consider a sin industry. And, don’t even get me started on tort lawyers who are looking to tap a central artery right in the heart of it all. In ‘Marijuana Land’ litigation is alive and well.
What sort of litigation is taking place? It runs the spectrum, but most litigation I have seen typically starts with an underlying contract dispute. Of these, most involve the owners of dispensaries fighting amongst themselves. Often, the owner fights get so bad that the Court appoints a receiver to assume dispensary operations. Those cases can drag on well beyond a year. I have also seen fights between cultivators and dispensaries – always over money. There are administrative court cases too, when DHS denies or seeks to revoke a patient card or dispensary certificate or ATO, or when citizens petition DHS to add more conditions to the approved list of qualifying conditions. My family law friends tell me they deal with parental rights issues all the time. My employment law friends see a flow of clients who lost jobs or job opportunities, due to their cannabis use. There are also numerous real estate zoning disputes. Litigation really does creep in from every corner.
What can I do to avoid litigation? Short of staying at home in a cocoon of bubble wrap, it is near-impossible to prevent life from happening. Remember, sometimes you don’t get a choice, and there is no such thing as a perfect situation. But, there certainly are things you can do to reduce the likelihood of being involved in litigation. For starts, be an honest and ethical businessperson. Follow the Golden Rule, even if the other guy won’t. Be impeccable and build your reputation on that foundation. Next, know who you do business with. Never sign contracts with strangers. Research. Do due diligence. Talk to good counsel before you execute significant business decisions. And, make sure your lawyer is competent in the areas of interest involved. You wouldn’t see your dermatologist for a brain tumor, right? So, don’t have your divorce lawyer reviewing your public offering memorandum. Likewise, well-thought-out and well-written contracts help a lot. Don’t do business on handshakes or on boilerplate forms you download off the internet. Buy as much insurance as you can afford and make sure you have the correct coverage. Most insurance excludes cannabis from coverage. Check with your broker. There are insurance companies and brokers who offer cannabis-friendly policies. Consider alternative dispute resolution, such as mediation and arbitration. Litigation is expensive. Investing in the peace instead of the war is near-universally always the right decision. And, of course, never be afraid to ask for help.
Gary Michael Smith is an attorney and arbitrator and partner in the Phoenix Arizona-based Smith Saks PLC. He is also a founding director and current president of the Arizona Cannabis Bar Association. He can be reached at smith@smithsaks.com.