The potential legalization and regulation of marijuana, whether for medical or recreational purposes, has attracted substantial national attention. Nine states, as well as Washington, D.C., have legalized cannabis for recreational use, and 29 have passed laws that make medical marijuana legal. See id. A 2017 Gallup poll found that 64% of Americans approve of legalization, and many states are considering legislation to take advantage of public sentiments and generate revenue. See, e.g., id. Perhaps what is of greatest interest is that legalization has bipartisan support—Gallup discovered that for the first time, the majority of Republicans approve of making marijuana legal. See Justin McCarthy, “Record-High Support for Legalizing Marijuana Use in the US,” Gallup News, Oct. 25, 2017, available at http://news.gallup.com/poll/221018/record-high-support-legalizing-marijuana.aspx?g_source=Politics&g_medium=newsfeed&g_campaign=tiles.
With the levels of approval for legalization at record highs, many analysts have predicted that more states will decriminalize marijuana, approve it for medicinal purposes, or legalize it altogether. See, e.g, id; SeeTrevor Hughes, “Marijuana industry poised for supercharged growth thanks to President Trump,” USA Today, Apr. 20, 2018. For those who decide to participate in programs that have legalized cannabis, there are a number of legal pitfalls to avoid. See, e.g., Joshua Cohen, “Avoiding Un/Civil Litigation in Your Cannabis Business,” JD Supra, Feb, 7, 2018, available at https://www.jdsupra.com/legalnews/avoiding-un-civil-litigation-in-your-68184/. This article examines an angle that those who operate in or are planning to enter the cannabis industry may overlook: civil litigation that members of the industry may face.
According to one legal analyst, while many marijuana-related businesses are aware of federal and state criminal actions and penalties, they may be less familiar with civil actions that can be brought against them. See id. There are three main types of civil suits that the cannabis industry and attorneys in the field should be aware of, and certain steps can be taken to protect prospective defendants. See id.
(1). Government Actions: Businesses and attorneys who operate within the cannabis community tend to be well-acquainted with possible criminal actions they can face for noncompliance, but “[i]n an interesting twist, some city and county authorities are foregoing criminal actions and bringing civil actions, seeking substantial penalties.” Id.In California, for example, the state’s Business & Professions Code, as well as the recently-adopted Proposition 64, gives state and local government authorities permission to bring civil actions concerning unfair competition, building code violations, and more. See id.; See California Business & Professions Code, §17200; See Proposition 64. Colorado, which has legalized marijuana for recreational use and has some of the most liberal cannabis policies, has a law similar to California’s, whereby “the Attorney General or district attorneys [may] seek civil penalties ($2,000 per violation) under Colorado Consumer Protection Act Section 6-1-112.” Joshua Cohen, supra.
In order to avoid their clients being sued and risking hefty fines or other penalties, attorneys involved in the cannabis industry should seek the help of expert witnesses. As consultants, such experts can help decide upon strategies to minimize the possibility of a government suit. They can help businesses understand how to comply with certain regulations, such as ones that require warnings to consumers to be displayed prominently. Experts who can identify planning mechanisms to avoid litigation may include those in the cannabis trade, business and competition specialists, and real estate professionals. The latter category can assist with drawing up leases correctly, responsibility for property, zoning concerns, and more.
(2). Plaintiffs’ “Rinse & Repeat” Suits:As one commentator explains, “Now that California has decriminalized recreational cannabis and hundreds of new companies are open for business, these attorneys are targeting these cannabis businesses, alleging that they have failed to provide a Prop 65 warning regarding the health risks associated with smoking, or in some cases, with ingesting cannabis products. We’ve seen certain law firms filing dozens of identical Prop 65 cases against various cannabis businesses.” Id.The types of firms that target the cannabis industry have been compared to “drive by” firms that look for businesses to sue for violations of the Americans with Disabilities Act (ADA). See id. Such plaintiffs can capitalize on the vulnerability of new enterprises and new legalization measures and hope to catch businesses off guard. See, e.g., id.
Because ignorance of the law is not a defense in this type of civil suit, attorneys with clients in marijuana-related industries must be proactive. Experts in public health, marketing, and related fields can assist parties in determining what warnings need to be issued about particular products. In addition, such experts can provide guidance on what the industry standard should be with respect to labeling, advertising, and selling cannabis to the public.
Moreover, a business that has consulted an attorney and retained experts to advise them on such matters may be less vulnerable if it is, in fact, the subject of litigation. Potential plaintiffs may have much more difficulty prevailing against entities whose legal representatives involved expert witnesses early in the business plan and acted on such advice in an effort to prevent litigation of this sort.
(3). Litigation within the Industry: A number of lawsuits have been brought between members of the cannabis industry for various reasons. In some instances, a competitor may bring suit to gain an advantage. See, e.g., id. For example, “[m]any of the jurisdictions allowing cannabis cultivation or dispensaries have capped the number of permits. As a result, some competitors are filing lawsuits alleging unfair business practices, trade secret misappropriation, trademark infringement or other similar claims, seeking to disqualify competitors or, at a minimum, saddle them with costly litigation and slowing their growth.” Id. In cases of this nature, experts in myriad fields may be called upon to provide advice to businesses and help give testimony if litigation arises. Experts in fair competition, intellectual property, and business practices may all play an important role in protecting one entity from another.
Those in the cannabis industry may also deal with litigation because “[c]annabis businesses have vendors/suppliers, customers, and employees, and each of these relationships has the potential for misunderstandings, disputes and ultimately litigation. Many cannabis operators historically ran their businesses on handshake deals.” Id. In each of these matters, experts can provide assistance. For instance, consulting with experts in the field and putting agreements in writing may help protect businesses from lawsuits over misunderstandings that can occur with oral contracts. With respect to customers and employees, retaining business operations and employment experts can help prevent a company from being blindsided by litigation over such matters. In any transactions involving more than one party in the same or a related industry, attorneys and experts can assist clients by trying “to anticipate future events and make certain [the clients] understand the implications of the contract language.” Id.
Many states have already signified an interest in legalizing marijuana for a limited use, expanding existing statutes to allow for recreational legalization, and liberalizing policies to permit accessible sales and purchases. This trend is likely to continue, and attorneys who practice in this field should prepare for prospective civil suits with the same gravity they give to criminal ones. Expert witnesses play a critical role in this relatively new industry, and those who wish to become involved or who have already entered the market should retain such experts as early as possible. In so doing, cannabis entrepreneurs can create smart business plans that mitigate the risks of litigation and maximize the likelihood of success.