May 18, 2012

Arizona Medical Marijuana Ruling Highlights Risks When Cannabis Investments, Partnerships Sour

News about medical marijuana laws, pot legislation and cannabis regulations

What legal recourse do lenders have if a medical marijuana business defaults on its loan? None, apparently.

At least that’s the case for two individuals in Arizona who provided $500,000 in loans to Today’s Health Care II, a dispensary located in Colorado Springs, Colorado. The lenders filed a lawsuit in Arizona, claiming that the medical marijuana center failed to repay the loan on time and did not cover interest and other fees as stipulated in a written agreement between the two sides.

But the judge dismissed the lawsuit, saying he could not enforce a loan contract tied to medical marijuana because the drug is still illegal federally.

“The explicitly stated purpose of these loan agreements was to finance the sale and distribution of marijuana,” the judge wrote in the ruling. “This was in clear violation of the laws of the United States. As such, this contract is void and unenforceable.”

It’s an extremely negative development for medical marijuana professionals, as it has the potential to destroy a fundamental pillar of business for the MMJ industry: the option to take legal action if another party violates an agreement.

The implications could be significant.

If other judges follow the same reasoning, companies involved in the medical marijuana space could find themselves without legal protection on any matter involving a contract or agreement. That would deter everyone from lawyers and landlords to bankers and insurance companies from doing business with the MMJ industry, and it would present another huge challenge for cannabis businesses that are looking for financing.

Khurshid Khoja, principal of Greenbridge Corporate Counsel in San Francisco, told MMJ Business Daily that the ruling “is indeed problematic.”

But he said medical marijuana companies have another way to resolve contract disputes: arbitration. If the parties agree ahead of time – and in writing – to work out differences via this process rather than litigation, they can sidestep the courts and therefore avoid the issue involved in the Arizona case.

“These arbitration provisions are enforceable even in contracts that courts might deem unlawful given the current conflict between state and federal laws on cannabis, Khoja said. “This means that the courts are barred from intervening in a contractual dispute between parties to an arbitration agreement except in instances where consent to the arbitration agreement itself was fraudulently obtained. I think we’ll see the widespread use of broad arbitration provisions to mitigate the damage” of the Arizona ruling.


One Comment:

  1. I am the Arizona lawyer who broke the story of this case on May 7, 2012, when I published a story called “Maricopa County Superior Court Ruling May be Last Nail in the Coffin of the Unborn Arizona Medical Marijuana Dispensary Industry.” Read more about this case on my Arizona Medical Marijuana Law website here:

    http://www.keytlaw.com/arizonamedicalmarijuanalaw/

    My website has the latest news about Arizona medical marijuana law.

Post Your Comment:


Please note:
Comments are moderated by our editors who do their best to approve comments ASAP. As Marijuana Business Daily is focused on business, we approve comments that are specifically relevant to industry professionals. General opinions and questions about cannabis may not be posted.

DC Bans Consumption at Private Clubs

In a bid to curtail premature business opportunities tied to recreational marijuana, city leaders in [click to continue...]

$36 Million Raised for Ohio MJ Legalization

A group in Ohio has already raised $36 million for a proposed ballot measure that would [click to continue...]

PharmaCann Poised to Hold Most IL Licenses

illinoismedicalmarijuana

After a medical marijuana company abandoned its cultivation license on Monday in an area west [click to continue...]

WA Could Outlaw Marijuana Vending Machines

Washington State entrepreneurs hoping to sell marijuana through vending machines or drive-up windows took a [click to continue...]

Cannabis Producers Have New Worry: Stoned Rabbits

Cannabis businesses face opposition from anti-marijuana advocates worried about the drug falling into the hands [click to continue...]

Nevada Senator: Secrecy in MMJ Licensing Process a ‘Disaster’

Las Vegas MMJ

Nearly 40% of the 519 businesses that applied for medical cannabis business licenses in Nevada [click to continue...]

Florida’s Second Stab at CBD Rules Questioned

Florida is having a hard time figuring out rules for its CBD industry. The state [click to continue...]

Maine Medical Cannabis Sales Total $16.2M

Dispensaries in Maine sold an estimated $16.2 million worth of medical cannabis last year, while [click to continue...]

Oregon Agency Weighs in on MMJ, Rec Rules

Oregonoutline

Oregon could keep medical marijuana completely separate from recreational cannabis when retail sales begin next [click to continue...]

Missouri Awards Hemp Cultivation Licenses

Missouri has joined the growing number of states legalizing CBD-based medicines. The state awarded cultivation [click to continue...]

150K Pounds of Legal Marijuana Sold in CO Last Year

Dispensaries and retail cannabis stores in Colorado sold nearly 150,000 pounds of marijuana flower last [click to continue...]

Medical Cannabis Demand Outweighing Supply in DC

supply and demand

Recreational marijuana has dominated headlines out of Washington DC this week, as the use, possession [click to continue...]

Another Lawsuit Over MMJ Licensing Process in Illinois

A company that got turned down for one of the Illinois’ 21 medical marijuana cultivation [click to continue...]

MJ Financial Services Firm Secures $2M Investment

A financial services firm that plans to serve the cannabis industry has secured $2 million [click to continue...]