04 Jan 2021: The Year of Cannabis Lawsuits?

For those who are not subscribers to Law360, they ran an interesting piece today on “cannabis litigation to watch in 2021.” This brief article is almost 2500 words! The newsiness of it, to me, is how much litigation we are dealing with currently in the cannabis and hemp industries as the New Year dawns. It was a growing issue in the last few years, but with the increasing number of states legalizing, more attention at the federal level, and lots of deals blowing up, of course the litigators are ready, willing and able to swoop in. (Disclaimer: I am a corporate lawyer and do not do litigation, but my law firm does.) Here’s a summary of what they covered:

• Lawsuits regarding referendums: South Dakota, Mississippi and Montana are the site of challenges to the legalization referendums passed in November. Basically these are constitutional challenges to the legalization efforts and are all still pending. New Jersey is also facing a somewhat wacky challenge to its recent referendum to approve adult use.
• Illinois licensing lawsuits: When less than 3% of Illinois adult use applicants received approval to move to a selection lottery, lawsuits commenced. The state did rescore and grant some additional approvals, but other suits continued. The lottery is now stalled until the cases are resolved. There is another case trying to order the state to comply with a deadline, now passed, to issue craft grower licenses. The court ruled the state could delay things, but the plaintiff may appeal. There have been some similar lawsuits in other states (like NY) when expanding licensing.
• Federal 280E challenge: As many know, Harborside, a major California operator, sued the IRS claiming they cannot deny tax deductions for ordinary business expenses of cannabis businesses under Section 280E of the Internal Revenue Code. Past challenges have failed. The appeal of the first decision, which denied Harborside relief, is to be argued in February. Commentators are not optimistic of a positive result for them.
• Florida constitutional challenge: The Florida Supreme Court will soon rule on a case challenging the state’s requirement to be “vertically integrated” (licensees must grow, process and sell cannabis to obtain a medical marijuana license) since the referendum approving medical cannabis did not require this. The state says it has broad powers under the referendum. The lower courts have all sided with the plaintiff (Florigrown) in its desire for a license. This could mean the end of vertical integration in Florida.
• DEA research lawsuit: An interesting challenge to the DEA’s policy on cannabis research is effectively arguing that cannabis should not be a Schedule 1 drug (which requires no known medical benefit) because that status interferes with legitimate research that is required. Until now the DEA has limited researchers to accessing product from one substandard facility. Still alive, the case is moving slowly with lots of roadblocks being put in the way by the DEA. Let’s see what happens with the new Administration.
• More? Beyond this article, there remain lawsuits out there with neighbors of licensees claiming “RICO” racketeering-type violations, Canopy Growth’s recent big patent suit against GW Pharma over its approved CBD-based drug epidiolex, challenges of residency requirements in Oklahoma and Maine, a labeling suit against a major CBD manufacturer, a number of TCPA suits claiming that CBD companies are violating limits on phone and text marketing of their products and various suits that are more common to any industry, including allegations of harassment, mismanagement and securities law violations in fundraising.

Me? I’d rather do financing and M&A deals that help the industry grow, prosper and thrive. I do, however, understand the importance of those who feel aggrieved to use the courts to address those issues when dispute resolution otherwise is not possible. That said, we know the US is a particularly litigation-prone country. Let’s hope this calms down a bit and we can continue to help move things forward in terms of the industry’s current trajectory and path to more broad acceptance. And a happy new year to all!! Remember: 20×21=420!