The cannabis industry is still considered to be in its youth despite having made great strides toward social and legal acceptance in recent years. It is still plagued by many issues that other, more established industries no longer have to navigate. Cannabis mediator Joseph George warns that “companies and individuals in the cannabis industry must tread carefully when addressing conflict. Getting the court system involved can raise issues of federal oversight and illegality, as well as highlighting conflicts between state and federal laws.” While it may be good news for many that the recreational and medical marijuana industries are expanding, the potential for conflicts and disputes is also drastically increasing.
Arbitration and mediation will become an option for cannabis industry disputes, but the cost involved in litigation is often prohibitive for many people. Alternative forms of dispute resolution are effective methods to resolve conflicts. These include negotiation, arbitration, and mediation through the use of neutral third-party mediators.
Many marijuana dispensaries and other cannabis-related businesses have been sued for allegedly violating the Telephone Consumer Protection Act. Others are facing lawsuits for alleged violations of the Americans with Disabilities Act. As the industry grows, more legal difficulties are inevitable. Regardless of the relevance or fault in cases like this, some Federal Courts have declined to hear cannabis-related cases. Utilizing alternative dispute resolution (ADR) to settle conflicts out of court will prove to be beneficial to those in the cannabis industry.
ADR in the Cannabis Industry
Alternative methods of dispute resolution like arbitration, mediation, and negotiation are the best options for resolving disputes outside of the court system. These three methods are especially helpful to the cannabis industry for several reasons, but time and cost are the top two advantages. Binding arbitration is faster and more cost-effective than litigation, and it is geared toward maintaining business relationships and getting companies back to their regular operations.
Confidentiality can also be upheld in ADR, which many cannabis companies value. Conversely, confidential information regarding business deals, financial loans, lease agreements, employment contracts, banking arrangements, and intellectual property rights could all be invalidated in court due to the federal status of cannabis.
What is a Cannabis Mediator?
A cannabis mediator is an attorney, former judge, or subject matter expert with extensive knowledge of the cannabis industry who also understands the related legal issues and how they arise. A cannabis mediator will understand the process goes from seeding, cultivation, and extraction to lining dispensary shelves. They assist and guide the conflicted parties toward an understanding of important issues, not deciding the outcome but helping the parties understand and focus on their own resolution.
What is Arbitration?
Arbitration is one form of ADR in which an arbitrator, rather than a judge or jury, applies the law to a dispute to reach a solution. There are two forms of arbitration – binding and nonbinding. Under binding arbitration, the parties agree to accept the arbitrator’s decision is final and binding, which limits their right to seek resolution through the court system. However, under nonbinding arbitration, if either party rejects the arbitrator’s decision, the parties are generally free to pursue the issue in court.
Commonly Asked Questions and Answers
Why should cannabis companies choose mediation over litigation?
Mediations are never recorded or open to the public, and mediators keep any information they receive confidential as part of their professional code of conduct. In contrast, litigation before a jury exposes all parties to each jury member’s prejudices and exposes the dispute in a way that could harm everyone’s reputation, including the winner of the dispute. So, in some respects, there are no absolute winners when these cases go to court. In highly regulated industries, such as cannabis, private ADR is often preferred over public litigation just to keep the spectacle, and the specifics, of their disputes away from reporters and regulators.
What types of disputes face the cannabis industry?
Some of the most common disputes facing the cannabis industry involve breach of contract, intellectual property infringement, partnership disputes, and land use disputes. There are so many opportunities for conflict in this industry, and I just want to stress that problems can arise in numerous ways. I also see disputes alleging negligent misrepresentation, securities fraud, investment fraud, Section 10(b) claims, and shareholder settlement agreements.
What are the other benefits of mediation instead of litigation for the cannabis industry, aside from the confidentiality aspect?
Let’s be honest, the cannabis industry and the judicial system have often had a kind of love-hate relationship. In addition to that, mediation can often resolve the dispute and, in contrast to most litigation, in a way that satisfies both parties. Even if the mediation session does not end the dispute on the first day, it often sets the framework for follow-up discussions that do reach a settlement soon after the mediation has begun. Second, mediation is inexpensive and can be scheduled rather quickly when the parties are ready for it. It offers a relatively low-risk exploration of settlement terms in a setting where the expectation for success is relatively high. Concessions are often made during the discussions that bring the parties far closer to each other than either side might have expected at the outset. Even in the cases that don’t settle, the process provides perspective and understanding, and exposes the risks both parties face if the case goes to trial.
What evidence or proof do the parties need to take to arbitration?
The type of evidence can vary depending on the nature of the dispute. For business and individual matters involving contracts, the evidence would include a copy of the agreement, as well as witness statements, photographs, and written documents showing the basis for the amount of money being sought. If a hearing is requested, the parties may testify, as well as any individuals with personal knowledge of the events.
Can anyone use arbitration, or are there eligibility criteria?
Any physical or legal persons who are parties to a dispute, whether contractual or non-contractual, can agree to settle their dispute by arbitration.
What is an arbitration clause?
Arbitration clauses, also known as arbitration agreements or arbitration provisions, are methods of alternative dispute resolution. Both parties essentially agree to settle disputes out of court with an arbitrator. Decisions coming from arbitration are legally binding unless the parties explicitly stipulate that the outcome is nonbinding.
What is the most common dispute in the cannabis industry, based on your experience?
Well, I would have to say non-contractual disputes. Sometimes friends or family members start a business together and never put a contract in place because of the relationship they already have with each other. But after the company grows and income increases, issues can start to arise. If a dispute comes into play and there is no contract in place, it’s hard to hold someone accountable. What happens when there is no clear, written agreement on the responsibilities of each partner or the percentage of the business each person owns? In these situations, it makes it very hard for attorneys, mediators, or arbitrators to assist in resolving the dispute.
What other types of cannabis disputes are handled using alternative dispute resolution?
There are too many to name them all, but I’d say operating and management agreements, joint venture agreements, purchase and sales agreements, breach of contract, and nondisclosure agreements. There are so many different facets of cannabis growth, production, and sale, and conflict can occur at any stage. I’ve seen ADR methods used for disputes involving cultivation agreements, separation of assets, licensing and land-use contracts, profit-sharing agreements, as well as logistics, technology, and cooperation agreements.
What do you feel will help the cannabis industry manage disputes better?
That’s an interesting question. I would say that a good, drafted contract from a reputable attorney and adding a mediation or arbitration clause would be an excellent place to start. Accountability is what a contract holds the parties to, and it keeps the guesswork out of the dispute.
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