The High 5 Most Harmful Hashish Contracts in California

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Clearly, work within the cannabis business for attorneys is far more than simply state license acquisition. In reality, after just a few years and except for aggressive licensing regimes, state licensing slows down and is normally taken in-house by cannabis firms that formulate compliance groups. In flip, as time goes on, a major quantity of the authorized work within the business activates transactions between licensees. California has definitely been no completely different (although we’re dragging within the licensing division, principally due to native management points). Nonetheless, present licensees are having no hassle conducting transactions with one another and with third events for items and providers as they race to achieve market share and construct their manufacturers.

As California’s regulated cannabis business continues to emerge, licensee transactions have gotten extra refined and numerous. On the identical time, due to the novelty of California’s regulated market (mixed with regulators’ persevering with evolution of regulatory interpretations), sure transactions are posing bigger and riskier points for licensees. This put up is devoted to the highest 5 most harmful licensee-to-licensee contracts in California:

1.      Slotting Charges.

In latest months, our California cannabis enterprise attorneys have seen a superb quantity of “pay-to-stay” and slotting price agreements between cannabis cultivators, producers, distributors, and retailers for devoted, prime-time shelf house. In commodities, particularly saturated ones, face time with customers isn’t nice and margins may be actually poor and the competitors is huge. In California, solely cannabis retailers can promote to the general public, so it’s vastly necessary for wholesale and distributor licensees to have good placement on shelf house in dispensaries and on the retailers’ on-line menus. The slotting price settlement primarily quantities to the lump sum price the provider pays to the retailer to order their sacred, strategic shelf house. The pay-to-stay settlement (which may be much like the slotting price) sometimes takes issues a step additional the place it’s instituted after the preliminary slot and addresses points for present merchandise like advertising, promotion, stock stocking, failure charges, and paying additional to make sure that your rivals don’t get any useful shelf house close to you or in any respect. The query, although, is whether or not such agreements are kosher in California within the first place on condition that our state cannabis legal guidelines usually prohibit anti-competitive practices by licensees. The reply on validity beneath these legal guidelines is that “it relies upon.” Analyses round anti-competitiveness and slotting price contracts is extremely factually intensive, and California cannabis regulators don’t appear conscious that this follow even exists. Whereas these contracts may give nice safety to licensees, they will also be used to dam and strangle out different wholesales that will not be as capitalized or strategic within the market. For extra on slotting price agreements, see right here.

2.     Distribution Agreements. 

Although the Medicinal and Grownup-Use Hashish Regulation and Security Act (“MAUCRSA”) stripped distributors of large quantities of energy (since, in contrast to alcohol, cannabis distributors don’t should take title to the merchandise they distribute), they’re nonetheless 100% needed within the California cannabis market as a result of they’re the solely license kind that may transport marijuana merchandise and so they’re additionally the one licensees that may coordinate the required third-party testing of licensees’ merchandise. Plus, previous to any retail sale, licensees should be certain that a distributor undertakes high quality assurance packaging and labeling evaluations of their merchandise, and so they’re nearly solely accountable for assortment and remittance of the cultivation and excise taxes to the California Division of Tax and Charge Administration. Since wholesale licensees should undergo distributors to get to market, distribution agreements are needed. In case your distributors is simply your freight center man, these agreements should not that potent and risk-laden. Nevertheless, for those who’re utilizing your distributor much like an alcohol distributor (i.e., a model home), you’ll want to make sure that your distribution settlement is far more aggressive relating to time period, circumvention to retailers, buy quantities, timing, acceptance and rejection of merchandise, testing points and recollects, regulatory compliance and accountability, and representations and warranties relating to the merchandise at concern. Particularly in California, our cannabis enterprise attorneys have seen far too many one-sided distribution agreements that aren’t correctly drafted, aren’t compliant with MAUCRSA, and that pay no consideration to element.

3.     Actual Property Leases. 

The rationale why actual property leases make the listing is as a result of all too usually our California cannabis enterprise attorneys have purchasers coming to them with boilerplate lease paperwork that don’t even point out MAUCRSA and/or the collateral results and contingencies born through the use of actual property for business cannabis exercise. Actual property is among the most necessary belongings and must-have’s for all types of licensure and allowing, so particulars round licensing timeline, code of conduct, federal intervention, business cannabis insurance coverage, and native and state licensing compliance ought to be large for the events, and never some after-the-thought from a kind lease doc. For extra on California cannabis leases, see right here, right here, and right here.

4.     IP Licensing.

Mental property licensing in cannabis is already precarious the place cannabis firms can’t safe federal safety for his or her emblems from the USPTO.  Most of the time although, cannabis firms can get trademark safety from the state governments within the states during which they function. In fact, there may be extra oddities in the case of state-specific IP safety for cannabis firms. In California, specifically, solely cannabis licensees can register and shield their cannabis emblems with the State of California.  And California was additionally about to have a really difficult relationship between third occasion, unlicensed firms that license their IP to cannabis firms, however backed off on second thought on adoption of the ultimate guidelines in January of this 12 months. The frequent case points with cannabis IP licensing are whether or not the licensor even has the IP they are saying they do (and whether or not or not that IP is protected and even protectable, which oftentimes its not due to present infringement issues) and the regulatory ins and outs relevant to IP licensing. In California, for those who’re going to be an IP licensor to a cannabis licensee, you will have to be disclosed to the state as a “monetary curiosity holder,” together with for those who’re taking a royalty as consideration for the granting of the license. Many operators  and their IP licensors fail to make this disclosure and/or don’t perceive regulators’ place relative to this requirement, which makes efficiency obligations and regulatory accountability within the settlement much more opaque.

5.     Influencer Agreements.

Influencer agreements made the listing as a result of licensees sometimes overlook or ignore that these contracts represent promoting, advertising, and promotion, which is closely managed by MAUCRSA and the Bureau of Hashish Management. Mainly, as a licensee, for those who use an influencer, you’re on the hook for his or her phrases and actions as they relate again to your organization and merchandise. All of because of this cannabis firms who need to work with influencers should use detailed contracts, coaching, and/or tips to teach their influencers on tips on how to not violate relevant laws. And this isn’t one thing that cannabis firms ought to gloss over in a two-page, boilerplate contract. Generic provisions that require all events to observe all relevant authorized necessities could also be ample in some contexts, however influencers are most likely not conscious of the specifics in cannabis laws, and in California, for instance, you higher guarantee that your influencer is gearing their adverts and promotions to adults solely (and that they’ll show that to an inexpensive diploma of certainty if regulators ask). As well as, the influencer just about can’t do something that’s engaging to a child (beneath the age of 21) and in the event that they do, the licensee goes to be on the hook.


The entire above agreements have to be dealt with with vital care and a deep grasp of the regulatory panorama in California. As at all times, the boilerplate is not going to minimize it in the case of compliance and accuracy, so don’t get caught on the incorrect aspect of one in every of these harmful contracts.

Re-published with the permission of Harris Bricken and The Canna Regulation Weblog



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