September 16, 2020 Top Story

Cannabis Contracts: Caveat Emptor?

Illegality prevents lost profits award for cannabis company

By Susan F. Dent

When the subject matter of a contract involves a Schedule 1 substance such as cannabis, federal courts cannot enforce performance or order remedies, one such court has held. In so ruling, the U.S. District Court for the District of Oregon highlighted an unexpected risk of contracting for cannabis-related services: a lack of federally enforceable remedies. Indeed, as the court raised this issue sua sponte, ABA Section of Litigation leaders and industry professionals alike agree that this ruling is a reminder to always consider the impact of inconsistent state and federal policies when counseling on cannabis industry matters.

The plaintiff argued the contractors provided subpar construction for their cannabis greenhouse

The plaintiff argued the contractors provided subpar construction for their cannabis greenhouse

Credit: contrastaddict | Photo editing by Genuine Pyun | iStockphoto by Getty Images

Breach of Commercial Contract with a Twist

In J. Lilly LLC v. Clearspan Fabric Structures International, Inc., a cannabis company signed an equipment lease agreement with a purchase option, as well as a separate construction contract, that provided that the defendant construction company would lease to the cannabis company a large greenhouse for the purpose of cultivating marijuana plants. The construction company entered into a contract with a subcontractor to construct the greenhouse for the cannabis company. The subcontractor allegedly performed subpar construction on the greenhouse, resulting in a myriad of leaks, holes in the roof, and ventilation system issues. After unsuccessfully attempting repairs, the cannabis company found the entire greenhouse unsuitable for housing a cannabis crop and moved forward with the instant litigation.

Premium Content For:
  • Litigation Section
Join - Now