Lawyers are expensive. Trust me, I get it. I am one and I have used them. So let me first start off by saying the best piece of advice I can give you is use a lawyer for any transaction where you’re dealing with another person or company. Now, let’s assume you ignore my advice and decide to venture out on your own like so many before you have done. I’ve had plenty of litigation cases over the years where two parties have not used a lawyer and relied upon either form documents they pulled off the Internet or documents that they worked through themselves, hopefully spelling out everything to memorialize their agreement.
I have seen documents worked out between cannabis industry clients and consultants and others relating to consulting agreements, non-compete and non-disclosure agreements, and even employment or independent contractor agreements and the like. If you are going to ignore my advice, let me at least provide a couple of things to think about when reviewing a contract so that one can lessen the likelihood that at some point, you will not be scratching your head wondering why you didn’t seek legal advice in advance, and hopefully saving you a couple of dollars as frankly, some agreements might not need legal assistance, so here it goes.
These are some of the main points to look for in regard to a contract (other than the law school buzzwords of offer, acceptance, and consideration), but this is by no means exhaustive.
1. Who are the parties?
You must determine if it is an individual or an entity which is the actual party to the contract. In turn, it is important to know whether an entity is actually just a shell or the alter ego of perhaps a main parent. For instance, I represent a client that is a holding company and for each project that client undertakes, a separate entity is formed. I am aware of a number of industry players who may have five or six affiliated but separate entities. Thus, it is very important to determine which party you are actually contracting with and is it the right party. In turn, is there any true enforceability should something go wrong against that party? Does that party have assets so that if a dispute arose and you were able to obtain a judgment against that party for whatever wrong may have occurred, are you actually able to collect on that judgment or are you essentially left holding a worthless piece of paper? If you are contracting with an individual, what might that mean versus contracting with the entity for which the individual may be the sole shareholder? These are all questions which should be thought about in depth when determining who are the parties and how to structure them. If you are the one forming the contract, might you be better off forming an entity for the purposes of doing your particular work, thus giving yourself some of the protections afforded to a company versus operating individually.
2. Where do we do battle should something go wrong?
Lawyers throw around words like “venue” and “jurisdiction” but at the end of the day you must ask yourself where and what law will apply to our dispute? This is important because if not spelled out in the contract, there are certain rules which may dictate where your dispute is handled. And sometimes this may be unfavorable, particularly in states that may not have dealt with cannabis issues in the past such as California and Washington where at least on the trial court level, there is some precedent for dealing with the cannabis industry and the effect of enduring federal illegality. Furthermore, think forward. Now you are a year into your agreement, something goes wrong, you operate in California, you signed a consulting agreement with an entity in Massachusetts, and now suddenly you are going to Massachusetts to address your dispute. You’re hiring a lawyer you’ve never heard of and know nothing about, and you are perhaps being forced to physically go to Massachusetts to participate in litigation.
3. Dealing with certain cannabis related and specific language that may not be in the normal form.
As an example, while there may not be that many differences between the contract to lease property in the regular commercial setting and cannabis related setting, there are certain subtle differences which can be addressed in a lease dealing with cannabis related operations. Certain immorality or illegality clauses should be removed, and perhaps you may want to add certain clauses addressing and acknowledging the activity to take place in compliance with the Cole Memo (the most recent Department of Justice directive to the U.S. Attorney’s Offices). Perhaps other waivers of defenses pertinent to contract law and in particular, cannabis related leaseholds should be addressed. These thoughts would apply to all types of cannabis related contracts.
4. Regulatory changes.
One might want to address what would happen in the event of regulatory changes. California comes to mind as it appears that while the future is moving forward toward a more regulated system, the future is uncertain. What must be thought through is how to plan ahead a year from now when entering into an agreement that would allow for some flexibility should regulatory change come forward. Not the easiest to do, but with a little thought even lay people and lawyers alike may be able to plan for some of the potential contingencies.
5. What is happening on day 110?
Spend a little time looking at the contract that you are doing and think ahead to day 110. Ask yourself does what we have in the contract apply to what we would be doing on day 110? For example, can you make a link from the start of the business process or the focus of the contract and take it through its life cycle? If you were a buyer of widgets, how would that work? Would Person A come to Person B to buy the widget, how would the money be handled, what reporting requirements might take place, etc.? If you can actually document how the process would work and by reading your contract, pretend you are at day 110 and can get from point A to point B with no problem by reviewing your contract, then you more likely than not have accomplished what is necessary.
Hopefully the foregoing is helpful. I don’t mean to cut lawyers off at the knees as we can scurry around like cockroaches to a piece of food once the lights are out, however I realize that often, especially in start up businesses, that the desire and ability to allocate resources for legal help may not always be there. The foregoing is a glimpse of what we as lawyers think about on a daily basis and is provided under the caveat that if and when possible, get a little legal help as it will save you money in the long run. But should you go it alone, just think through what you’re doing and with a little luck, you’ll never have to see me or one of my colleagues.
David Kotler is a partner in Medical Marijuana Business Lawyers™, LLC, a practice of Cohen Kotler, P.A. He draws on his broad practice experience to serve clients across the country that are involved in the cannabis industry, including transactional, licensing, and litigation matters. He may be reached at email@example.com or 561-361-9600.