Cannabis industry fertilizes ADR business

Steven I. Platt, BridgeTower Media Newswires

If you think lawyers who are creative, indeed entrepreneurial, should be encouraged to ply their trade, and that emerging industries are fertile ground to do so, then you should give a shout-out to the rapidly expanding business of manufacturing, packaging, selling and distributing cannabis for medicinal and recreational purposes.

More and more states are legalizing cannabis for multiple purposes. These jurisdictions are providing forums for the creation and development of new – and in some cases eclectic – business relationships, including consulting agreements, distribution deals, partnerships, licensing relationships and even the co-authoring of how-to manuals.

Like all other business dealings and organizations created for the purpose of developing new and different products for profit, the potential for disputes to arise between partners and competitors always is present.

Due to the nature of the cannabis industry and its multiple levels and conflicting state and federal regulatory schemes, many individuals and businesses are choosing to use ADR instead of litigating when troubles or disputes arise.

For one, there is a perception, or at least a concern, among individuals and businesses – as well as many of the lawyers and law firms – that judges and jurors personally opposed to marijuana for historical or cultural reasons may not give them a fair hearing. This perception leads cannabis industry entrepreneurs to insert into their contracts mandatory mediation and arbitration clauses designed to avoid these negative possibilities.

Mediation also, by its inherent nature (and possibly statute or rule), includes a confidentiality component. Confidentiality is very important if the activity, or even part of the activity in dispute, remains illegal under federal law even if it is legal in many states, as is the case with most activities associated with the cannabis industry. Most banks and other traditional financial institutions refuse to finance industry development. This reality is further evidenced by the refusal of colleges and universities to offer training for those who work in the medical marijuana industry; the University of Maryland School of Pharmacy, acting on the advice of the Maryland Attorney General’s Office recently canceled plans to offer training for those who work in the medical marijuana industry.

Medical marijuana industry entrepreneurs and workers, then, must search elsewhere for education and training on everything from how to set up their business to how to grow, store, transport, market and sell. They have found, by process of elimination, that the only sources for that education and training are other individuals and companies located in states that legalized medical, and in some cases, recreational marijuana use in previous years. These individuals and companies have the education, background and, most importantly, the experience to provide the education and training needed to establish and develop potentially profitable medical marijuana enterprises.

The result has been these new entrepreneurs and their businesses are negotiating and entering into consulting contracts with experienced individuals and companies in the medical marijuana industry in other states in order to obtain information and training. These contracts are not easily crafted and understood even by lawyers familiar with the industry.


No end in sight

The relationships created by the contracts between the consulting companies and those who avail themselves of their services to provide startup training are often fraught with the risk of the disclosure of trade secrets, as well as the violation of covenants not to compete, among other potential hazards. In turn, the contracts often have provisions drafted to minimize, if not eliminate, those risks.

But they are not always successful, which in turn creates conflicts that if not resolved quickly and efficiently can kill an emerging medical marijuana business before it gets started. The result has been mediation and arbitrations generated by the dispute resolution provisions in these consulting contracts.

I have been involved as both a mediator and an arbitrator in a number of marijuana cases across the country. Intermingled with these is litigation usually filed in multiple federal courts in an attempt to either consolidate the cases in a geographically convenient or perceived philosophically friendly forum, involving identical parties or third-party spinoffs separated for tactical reasons. No end to this time-consuming and expensive as well as in many cases overlapping litigation, arbitrating and mediations is in sight.

Indeed, my favorite case and experience so far is one where the parties and counsel sought dismissal or transfer of a case in which I was the chair of a three-arbitrator panel. They first sought that relief from the U.S. District Court in the District of Columbia, which not only declined to dismiss or transfer our arbitration case but instead ordered the parties to proceed before my panel in Maryland or Washington. The losing party then came to our panel requesting the same relief.

When we realized that they were asking the panel to, in effect, reverse the U.S. District Court’s decision, my only comment on behalf of the panel?

“I’d ask you what you are smoking – but we already know.”


Steven I. Platt, a retired associate judge on the Prince George’s County Circuit Court, writes a regular column for The Daily Record. He can be reached at