Cannabis Contract Enforcement
Updated: Feb 9
When a contract involves cannabis, federal courts cannot enforce performance or order remedies, one court has ruled.
A cannabis company signed an equipment lease with a purchase option and a construction contract that provided the construction company would lease a large greenhouse to cultivate marijuana. The construction company entered into a contract with a subcontractor to build the greenhouse. The subcontractor did subpar work resulting leaks, holes in the roof, and ventilation system issues. After unsuccessfully attempting repairs, the cannabis company sued.
The cannabis company sought $5,400,000 in lost profits damages.
The construction company moved for summary judgment. While the court did dismiss the case, it did so because the contract subject matter was illegal.
The court said the sale and surrounding activities in support of selling cannabis, like those contemplated in the contracts, was criminal. The court said that the Supremacy Clause supports a finding that the federal ban is superior to state law which may permit the sale and distribution of cannabis. Based on this, the court declined to enforce these cannabis-related contracts.
Why This Is important ... This is another side of what is practically universal law that cannabis companies cannot use the United States Bankruptcy Code . The difference here is state courts might be willing to enforce these contracts if cannabis sales are legal in the state if you can get jurisdiction over the other parties in state court.