Cannabis News

Risk Allocation in Cannabis Contracts

Published

11 months ago

December 21, 2023

admin

One of the main reasons why I am such a vocal supporter of written cannabis contracts is allocation of risk and liabilities. Parties to a cannabis contract have a number of ways that they can allocate risks and liabilities that they just won’t have in a “handshake” deal. Today I’ll explore six of the top ways to allocate risk in a cannabis contract.

#1 Disclaimers

If you’ve ever read through a cannabis contract, there’s a good chance you’ve seen disclaimers of representations, warranties, or guarantees. By making a disclaimer, a party is refusing to make an express or implied warranty (promise) about a certain condition. If a seller sells a piece of equipment on an as-is basis and disclaims all warranties about the product, then if the product does not perform as desired, the buyer may not have recourse (except for warranties that can’t be disclaimed by law). Without the disclaimer, there may be implied warranties that give the buyer recourse against the seller.

Disclaimers can be general, such as a disclaimer of any warranty not specifically made in the contract. Even more generally, “as-is” language can serve as a disclaimer of sorts (i.e., “buyer acquires the asset as-is, with all faults, and without any warranty from seller”). They can also be specific, such as a specific disclaimer of the implied warranty of merchantability. In many cases, you’ll see both the general disclaimer, followed by non-exclusive carveouts of warranties.

A savvy counterparty will often push back against one-sided disclaimers. In most cannabis contracts where cannabis products are transferred (intellectual property licenses, white label contracts, distribution agreements, manufacturing agreements, supply agreements, etc.), the buyer or transferee will insist that the manufacturer/supplier/seller makes certain representations explicitly, such as that the products will be fit for human consumption, comply with applicable laws, and so on. I see lots of negotiation around these provisions, as they can make or break a cannabis contract.

#2 Assumption of Risks

Cannabis contracts can also force certain parties to assume specific risks. Risk assumption comes up frequently in contracts with percentage splits. Imagine a cannabis distribution contract where a distributor agrees to sell a manufacturer’s products in exchange for 15% of the profits. Usually, when the distributor sells the goods and is paid, it pockets its cut and remits the rest to the manufacturer.

These kinds of arrangements involve some deal of trust by the manufacturer – trust that the distributor will sell the goods, will sell them at the desired purchase price, will promptly collect payment, and will promptly remit payment. Most of this can be dealt with in a contract. However, the first part – making promises about sales levels – obviously is a risk for many distributors.

I have seen plenty of cannabis contracts like this where one party assumes the risk that some of the above things will not happen right. For example, if the distributor has to buy the cannabis goods from the manufacturer, it will assume the risk that it won’t resell the goods. If the contract is a consignment arrangement, the manufacturer may take the financial hit if the manufacturer can’t sell the goods.

Often, risk assumption is not expressed affirmatively but happens by virtue of assignment of specific obligations to a specific party, or even through warranty disclaimers as noted above. To really do a good job here, the parties will need to think of every step in performance of the contract, what could go wrong at each step, and who should be on the hook if/when things do go south. I’ve been writing these kinds of cannabis contracts consistently for more than five years now and can tell you that there are tons of blind spots that can lead to massive financial hurt if parties don’t consider these impacts early on.

#3 Risk of Loss/Title

Related to the last point, in purchase and sale or commercial-type contracts where products are sold or transported from one party to another, the concepts of risk of loss and transfer of title are immensely important. Our firm does a lot of international work and has seen first-hand the massive adverse impacts of failure to address these provisions in international shipping. But because cannabis deals don’t involve international (or even interstate) shipment, cannabis companies overlook these basic concepts, often to their downfall. I’ll go over why they are important now.

First, let’s talk title. Title to a good means ownership of that good. One can hold title to a good without being in possession of that good. If you lend your friend your phone, your friend possesses the phone but doesn’t hold title to it (you do). In some distribution contexts, the manufacturer may hold title to the good, while the distributor transports it to a retailer. This is consignment. In the consignment cannabis contract, the manufacturer will sell the good directly to the retailer, at which point title will transfer from the manufacturer to the retailer. The distributor will never hold legal title, will only possess the good while performing services, and will generally be paid as a service provider. Keep in mind that the parties can negotiate a different transfer of title, i.e., upon pickup by the distributor.

Second, let’s talk risk of loss. This just refers to who bears responsibility if a good is stolen, damaged, destroyed, lost, etc. In the foregoing example, let’s assume that the manufacturer and retailer sign a sales agreement before the distributor picks up the good for transport. The manufacturer may want risk of loss to transfer to the retailer upon the distributor’s pickup, whereas the retailer will want risk of loss to transfer upon delivery. The reason for this should be clear – neither party will want to bear the risk that the distributor loses the good. But, somebody will have to. One way to address this is to pick a time to allocate risk of loss between manufacturer and retailer, and separately have distributor bear responsibility in the distribution contract.

Third, let’s talk about acceptance and rejection. These concepts are not the same as risk of loss and transfer of title, but often are mixed in and/or in the same part of the contract. In the example I’ve used, when the retailer receives the goods, it will have some fixed period of time (say 48 hours) to inspect the goods, and will be able to reject the goods for a specific set of reasons within that period. Title and risk of loss likely would already have transferred to the retailer, but upon rejection, the goods will be returned to the manufacturer.

As you can imagine, there are endless possibilities of ways to allocate risks and liabilities in the context of risk of loss and title. Inspection and rejection adds far more criteria. Cannabis contracts that are silent on these provisions are just begging to wind up in litigation.

#4 Indemnification

I explained indemnification in an earlier post, which I’ll quote here:

If you’re not familiar with indemnification, let’s go back to the purchase example. Say a retailer purchases edibles from a manufacturer, and customers get sick when they eat the edibles. And say those customers sue the retailer. The retailer didn’t make the edibles, so it would want the manufacturer to foot the bill for its defense and any damages that are awarded. This is called “indemnification.”

Here’s another example: Party A licenses its trademarks to Party B, a manufacturer and distributor, to make and sell branded goods. Party C decides that it is the real owner of these trademarks and sues Party B. Party B is going to be upset because it did not intend to infringe Party C’s trademarks and was probably promised in the cannabis contract that Party A actually owned the goods. With a good IP indemnification clause, Party B can force Party A to engage defense counsel and pay any costs associated with Party B’s defense.

Nobody wants to get hauled into court because the other party to a cannabis contract did something wrong. Indemnification is the gold standard for dealing with risks caused by a contracting party.

#5 Limitations of Liability

I also explained these clauses in my earlier post:

If you’ve ever looked at a written contract, you’ve probably seen a provision about halfway through in all caps with a heading that reads, “LIMITATION OF LIABILITY.” As the name suggests, these provisions are intended to narrow or eliminate liabilities of one or both parties. They generally include provisions that carve out things like consequential and incidental damages (i.e., damages that are not a direct result of a breach) and punitive damages (i.e., damages that are intended to punish a wrongdoer). But limitations of liability may also place caps on one or both parties’ damages, which can be a big advantage in a dispute.

Generally speaking, contract disputes do not lead to punitive damages, which are damages that are intended to punish a wrongdoer. These are usually reserved for certain “torts” like battery, interference with a third-party contract, etc. Some cases may involve both contract and tort claims where punitive damages may be on the table. A carefully crafted limitation of liability clause in a cannabis contract may be able to touch on both (depending on applicable state law).

That said, even if punitive damages are not available in contract disputes, incidental and consequential damages may be on the table, though they are often hard to get. Imagine that a cannabis company has a water leak and hires a plumber to fix it. The plumber does not perform work in accordance with the contract and the business floods overnight. The business is forced to shut down for a week and loses tens of thousands of revenues. The direct damages in the dispute will be fixing the negligent repair and maybe even some of the damage to the premises. The incidental and consequential damages may be the loss of revenue. While again, this can be hard to prove, it is very easy to disclaim those types of damages in a written contract so as to never need to worry about complex battles over damages.

#6 Caps

Caps are also a great way to shift risks. Caps can be used in all sorts of contexts. Limitation of liability clauses may have caps on damages in addition to damage carve outs. For example, a distribution contract may provide that except for certain cases of willful misconduct, the distributor’s maximum liability to the manufacturer may be the amounts paid by the manufacturer to the distributor in X period of time.

Indemnification provisions also often have caps. This comes up a lot when buying and selling businesses or business assets – and it’s usually the seller that pushes for them. Imagine selling a business for $750,000. If indemnification clauses are unlimited, and a dispute arises that requires seller-side indemnification, the seller may end up paying the buyer more than it was paid for the business. So as you can imagine, sellers will often push to cap indemnification at some percentage of the purchase price. In my experience in non-cannabis deals, the percentage is often relatively low. In cannabis deals, I often see a much higher percentage. That tends to be due to the fact that there are often (not always) many more potential issues for buying a cannabis business than most other kinds of businesses.

As an aside, M&A transactions sometimes also include deductibles as well. In those cases, a party seeking indemnification won’t be entitled to indemnification unless it has some minimum threshold of losses. If that number is $50,000, and the buyer seeking indemnification only had $40,000 in damages, it won’t be indemnified. Once it hits that $50,000 mark, it can either (depending on the cannabis contract’s terms) be indemnified for the entire basket of damages, or only for what’s over the $50,000 mark.

Parties to cannabis contracts have myriad tools at their disposal when it comes to shifting risks and liabilities. Of course, this can really only be done well in a written contract.

Source link

Cannabis News

Latest Trump Weed Rumor – Trump Will Federally Deschedule and Decriminalize Cannabis, but Not Legalize It

Published

27 minutes ago

November 14, 2024

admin

trump on marijuana reform

In a recent interview, former New Jersey Governor Chris Christie made headlines by asserting that President-elect Donald Trump will pursue significant reforms in federal policies regarding marijuana and cryptocurrency. As the nation grapples with evolving attitudes toward cannabis and the burgeoning digital currency market, Christie’s predictions have ignited discussions about the potential implications of such changes on both industries. This article delves into Christie’s insights, the current state of marijuana and cryptocurrency regulations, and the broader implications of these anticipated reforms.

The Current Landscape of Marijuana Legislation

Federal vs. State Laws

Marijuana remains classified as a Schedule I substance under the Controlled Substances Act (CSA), which places it in the same category as heroin and LSD. This classification has created a complex legal landscape where states have moved to legalize cannabis for medical and recreational use, while federal law continues to impose strict prohibitions. As of now, over 30 states have legalized marijuana in some form, leading to a burgeoning industry that generates billions in revenue.

Challenges Faced by the Cannabis Industry

Despite its legality in many states, the cannabis industry faces significant hurdles due to federal restrictions. These challenges include:

Banking Access: Many banks are hesitant to work with cannabis businesses due to fear of federal repercussions, forcing these businesses to operate largely in cash.

Taxation Issues: The IRS enforces Section 280E of the tax code, which prohibits businesses engaged in illegal activities from deducting normal business expenses, leading to disproportionately high tax burdens for cannabis companies.

Interstate Commerce: The lack of federal legalization prevents cannabis businesses from operating across state lines, limiting their growth potential.

Chris Christie’s Perspective on Marijuana Reform

Christie, a former presidential candidate known for his tough stance on drugs during his tenure as governor, has evolved his views on marijuana over the years. In his recent statements, he emphasized that Trump is likely to pursue descheduling cannabis, which would remove it from the Schedule I classification. This move would not only provide clarity for businesses operating in legal markets but also open avenues for banking and investment.

Christie highlighted that descheduling would allow for a more regulated market where safety standards could be established, thus protecting consumers. He believes that this approach aligns with a growing consensus among Americans who support legalization and recognize the potential benefits of cannabis use for both medical and recreational purposes.

The Future of Cryptocurrency Regulation = The Rise of Cryptocurrencies

Cryptocurrencies have surged in popularity over the past decade, with Bitcoin leading the charge as the first decentralized digital currency. The market has expanded to include thousands of alternative coins (altcoins), each with unique features and use cases. As cryptocurrencies gain traction among investors and consumers alike, regulatory scrutiny has intensified.

Current Regulatory Challenges

The cryptocurrency market faces several regulatory challenges that hinder its growth and adoption:

Lack of Clarity: Regulatory frameworks vary significantly across states and countries, creating confusion for investors and businesses.

Fraud and Scams: The rapid growth of cryptocurrencies has led to an increase in fraudulent schemes targeting unsuspecting investors.

Consumer Protection: Without clear regulations, consumers are often left vulnerable to risks associated with volatile markets.

Christie’s Vision for Crypto Regulation

Christie believes that under Trump’s leadership, there will be an effort to find a “sweet spot” for cryptocurrency regulation balancing innovation with consumer protection. He argues that overly stringent regulations could stifle growth in this emerging sector while too little oversight could expose consumers to significant risks.

In his view, a balanced regulatory framework would include:

1. Clear Definitions: Establishing clear definitions for different types of cryptocurrencies and tokens to differentiate between securities and utility tokens.

2. Consumer Protections: Implementing measures to protect investors from fraud while promoting transparency within the market.

3. Encouraging Innovation: Creating an environment conducive to innovation by allowing startups to thrive without excessive regulatory burdens.

Christie’s insights reflect a growing recognition among policymakers that cryptocurrencies are here to stay and that appropriate regulations are necessary to foster growth while safeguarding consumers.

Implications of Proposed Reforms

Economic Impact

The potential reforms proposed by Christie could have far-reaching economic implications:

Job Creation: Legalizing marijuana at the federal level could lead to significant job creation within the cannabis industry—from cultivation and production to retail sales.

Investment Opportunities: Descheduling cannabis would open up investment opportunities for institutional investors who have been hesitant due to federal restrictions.

Boosting Local Economies: Legal cannabis markets have proven beneficial for local economies through increased tax revenues and job creation.

Similarly, clear regulations around cryptocurrencies could stimulate investment in blockchain technology and related industries, fostering innovation and economic growth.

Social Justice Considerations

Both marijuana legalization and sensible cryptocurrency regulations have social justice implications:

Addressing Past Injustices: Legalizing marijuana could help rectify past injustices related to drug enforcement policies that disproportionately affected marginalized communities.

Financial Inclusion: Cryptocurrencies offer opportunities for financial inclusion for those underserved by traditional banking systems, particularly in low-income communities.

Political Landscape

The political landscape surrounding these issues is complex. While there is bipartisan support for marijuana reform among certain lawmakers, challenges remain in overcoming entrenched opposition. Similarly, cryptocurrency regulation has garnered attention from both sides of the aisle but requires collaboration to establish effective frameworks.

Conclusion

Chris Christie’s predictions about President-elect Donald Trump’s approach to federal marijuana descheduling and cryptocurrency regulation suggest a potential shift in U.S. policy that could significantly reshape both industries. As public opinion evolves on these issues, lawmakers have an opportunity to enact meaningful reforms that promote economic growth while ensuring consumer protection. The anticipated changes could foster a more robust cannabis industry that contributes positively to the economy and addresses social justice concerns, while clear regulatory frameworks for cryptocurrencies could encourage innovation and protect consumers in the digital economy. Stakeholders in both sectors are closely watching these developments, eager to see how potential reforms might impact their futures. While the realization of Christie’s predictions remains uncertain, it’s clear that the conversation around marijuana and cryptocurrency regulation is ongoing and far from settled.

TRUMP 2.0 ON CANNABIS REFORM, READ ON…

TRUMP 2.0 ON FEDERAL CANNABIS REFORM – WHAT DO WE KNOW?

Source link

Cannabis News

Webinar Replay: Post-Election Cannabis Wrap – Smoke ’em if You’ve Got ’em

Published

24 hours ago

November 13, 2024

admin

On Thursday, November 7th, Vince Sliwoski, Aaron Pelley and Fred Rocafort held a post election discussion “Post-Election Cannabis Wrap – Smoke ’em if You’ve Got ’em”. Watch the replay!

Key Takeaways from the “Smoke ’em if You’ve Got ’em – 2024 Post Election Cannabis Wrap” Webinar:

Panelists:
- Vince Sliwoski: Oregon Business lawyer specializing in cannabis and commercial real estate.
- Aaron Pelley: Experienced in cannabis law since Washington’s legalization in 2012.
- Fred Rocafort: Trademark attorney working closely with the cannabis team.
Election Results Overview:
- Most 2024 cannabis ballot measures did not pass.
- Florida, South Dakota, and North Dakota saw failures.
- Nebraska became the 39th state to legalize cannabis for medical use when it passed two cannabis initiatives, Initiatives 437 and 438.
Federal and State-Level Developments:
- Medical use is currently legal in 38 states, and 24 states allow recreational use.
- Republican support for marijuana legalization is growing.
Federal Policy Implications:
- Schedule III Rescheduling: The process to move cannabis to Schedule III is ongoing, which could significantly impact the industry.
- Importance of Federal Appointments: The future of cannabis policy depends heavily on who is appointed to key positions in the administration.
International and Domestic Trade:
- Schedule III status could ease import/export restrictions on cannabis.
- Unified control of House, Senate, and presidency might expedite legislative progress.
Economic and Industry Impact:
- Cannabis stocks experienced volatility post-election, reflecting investor uncertainty.
- Federal legalization and banking reforms are crucial for industry stability and growth.
Future Outlook:
- The potential for federal rescheduling remains strong, with hearings scheduled for early 2025.
- State-level initiatives and regulatory developments will continue to shape the industry.

Watch the replay!

Source link

Cannabis News

I Had Just One Puff

Published

1 day ago

November 13, 2024

admin

one puff of a joint a drug test

“How Long Does One Puff of Weed Stay in Your System?”… This topic can be difficult to answer since it is dependent on elements such as the size of the hit and what constitutes a “one hit.” If you take a large bong pull then cough, it might linger in your system for 5-7 days. A moderate dose from a joint can last 3-5 days, whereas a few hits from a vaporizer may last 1-3 days.

The length of time that marijuana stays in the body varies based on a number of factors, including metabolism, THC levels, frequency of use, and hydration.

Delta-9-tetrahydrocannabinol, or THC, is the primary psychoactive component of cannabis. THC and its metabolites, which remain in your body long after the effects have subsided, are detected by drug tests.

Since these metabolites are fat-soluble, they cling to bodily fat molecules. They could thus take a while to fully pass through your system, particularly if your body fat percentage is higher.

THC is absorbed by tissues and organs (including the brain, heart, and fat) and converted by the liver into chemicals such as 11-hydroxy-THC and carboxy-THC. Cannabis is eliminated in feces at a rate of around 65%, while urine accounts for 20%. The leftover amount might be kept within the body.

THC deposited in bodily tissues ultimately re-enters the circulation and is processed by the liver. For frequent users, THC accumulates in fatty tissues quicker than it can be removed, thus it may be detectable in drug tests for days or weeks following consumption.

The detection time varies according to the amount and frequency of cannabis usage. Higher dosages and regular usage result in longer detection times.

The type of drug test also affects detection windows. Blood and saliva tests typically detect cannabis metabolites for shorter periods, while urine and hair samples can reveal use for weeks or even months. In some cases, hair tests have detected cannabis use over 90 days after consumption.

Detection Windows for Various Cannabis Drug Tests

Urine Tests

Among all drug tests, urine testing is the most commonly used method for screening for drug use in an individual.

Detection times vary, but a 2017 review suggests the following windows for cannabis in urine after last use:

– Single-use (e.g., one joint): up to 3 days

– Moderate use (around 4 times a week): 5–7 days

– Chronic use (daily): 10–15 days

– Chronic heavy use (multiple times daily): over 30 days

Blood Tests

Blood tests generally detect recent cannabis use, typically within 2–12 hours after consumption. However, in cases of heavy use, cannabis has been detected up to 30 days later. Chronic heavy use can extend the detection period in the bloodstream.

Saliva Tests

THC can enter saliva through secondhand cannabis smoke, but THC metabolites are only present if you’ve personally smoked or ingested cannabis.

Saliva testing has a short detection window and can sometimes identify cannabis use on the same day. A 2020 review found that THC was detectable in the saliva of frequent users for up to 72 hours after use, and it may remain in saliva longer than in blood following recent use.

In areas where cannabis is illegal, saliva testing is often used for roadside screenings.

Hair Tests

Hair follicle tests can detect cannabis use for up to 90 days. After use, cannabinoids reach the hair follicles through small blood vessels and from sebum and sweat surrounding the hair.

Hair grows at approximately 0.5 inches per month, so a 1.5-inch segment of hair close to the scalp can reveal cannabis use over the past three months.

Factors Affecting THC and Metabolite Retention

The length of time THC and its metabolites stay in your system depends on various factors. Some, like body mass index (BMI) and metabolic rate, relate to individual body processing, not the drug itself.

Other factors are specific to cannabis use, including:

– Dosage: How much you consume

– Frequency: How often you use cannabis

– Method of consumption: Smoking, dabbing, edibles, or sublingual

– THC potency: Higher potency can extend detection time

Higher doses and more frequent use generally extend THC retention. Cannabis consumed orally may remain in the system slightly longer than smoked cannabis, and stronger cannabis strains, higher in THC, may also stay detectable for a longer period.

How Quickly Do the Effects of Cannabis Set In?

When smoking cannabis, effects appear almost immediately, while ingested cannabis may take 1–3 hours to peak.

The psychoactive component THC produces a “high” with common effects such as:

– Altered senses, including perception of time

– Mood changes

– Difficulty with thinking and problem-solving

– Impaired memory

Other short-term effects can include:

– Anxiety and confusion

– Decreased coordination

– Dry mouth and eyes

– Nausea or lightheadedness

– Trouble focusing

– Increased appetite

– Rapid heart rate

– Restlessness and sleepiness

In rare cases, high doses may lead to hallucinations, delusions, or acute psychosis.

Regular cannabis use may have additional mental and physical effects. While research is ongoing, cannabis use may increase the risk of:

– Cognitive issues like memory loss

– Cardiovascular problems including heart disease and stroke

– Respiratory illnesses such as bronchitis or lung infections

– Mood disorders like depression and anxiety

Cannabis use during pregnancy can negatively impact fetal growth and development.

Duration of Effects

Short-term effects generally taper off within 1–3 hours, but for chronic users, some long-term effects may last days, weeks, or even months. Certain effects may even be permanent.

Bottom Line

The amount of time that cannabis remains in your system following a single use varies greatly depending on individual characteristics such as body fat, metabolism, frequency of use, and mode of intake. Frequent users may maintain traces of THC for weeks, whereas infrequent users may test positive for as little as a few days. Hair tests can disclose usage for up to 90 days, while blood and saliva tests identify more recent use. Urine tests are the most popular and have varying detection durations. The duration that THC and its metabolites are detectable will ultimately depend on a number of factors, including dose, strength, and individual body chemistry.