Cannabis business is novel – and it’s still a business
Fifteen years ago, it was unimaginable that we would have the ability to legally purchase marijuana in 21 states, and that we would be unwrapping all of the nuances of the hemp plant and its 150 cannabinoids, and that we would be turning them into products that are beneficial to your health and that can bring you a pleasant sense of relaxation – and intoxication if you choose to go that route.
The industry is new, and business owners who venture down the path of cannabis business ownership and peripheral businesses—at least those that I have met—are interested in growing with the landscape and the cannabis plant in a legally compliant way. Because we routinely work with businesses in growth mode, cannabis is a natural fit for us.
What has been a surprise is that while these businesses are concerned about being legally compliant with dosage, packaging, testing, and other requirements, they are—by and large—doing business on a handshake rather than having written contracts. I imagine that part of that blind spot comes with the legacy of cannabis having been illegal for so long. Why would you put in writing that you are agreeing to sell or supply?
The reason is the same as with any other business. I have previously written about the importance of contracts and all they afford in the way of protection and minimizing risk, but let me recap quickly here. The purpose of a contract is to outline terms and conditions that are mutually agreed upon by all parties. While it is true that contracts can be verbal – the familiar “handshake deal” – it is ALWAYS better to have the terms of an arrangement formally captured in a contract.
Whatever the circumstances of a business relationship, and no matter how much you trust the other parties, a written contract is a far superior safeguard of your business interests than a mere handshake. And cannabis is no exception.
In my experience, the three most important aspects of a contract are:
- They require all parties to think through and clarify precisely what terms they agree to – a meeting of the minds, an understanding. The fact of putting it in writing makes you think about things that you otherwise wouldn’t have thought about with just a handshake. And, those are the things that will bite you in the assets.
- If memories fade, the contract serves as a reminder of the original intent.
- Contracts also preserve friendships and support harmonious relationships, which is an underrated and intangible aspect of increasing the bottom line, mainly because the business communities we serve are very small – even if they are global.
It is common for emerging markets to initially forge new business relationships with those informal “handshake and a smile” deals. Cases such as the “dotcom” boom of the late 1990s and the social media proliferation of the early 21st century are prime examples of new industries that grew wildly and rapidly, mainly on the strength of a verbal promise with some hands firmly pressed together to commemorate it. And the business of cannabis is no exception.
Because the industry is relatively new and unique, it is especially important to put your agreements in writing, and leave the handshakes to all of the introductions when you are rich and famous. To underscore the importance – having a business relationship and its terms captured in writing significantly strengthens legal protections if either party fails to deliver on their part of the contract. In addition, other crucial and potentially damaging legal and financial implications are associated with not having written contractual agreements that cover emerging areas of legal concern.
These include:
- Liability due to inaccurate testing of THC products,
- Being subject to audits by a governmental agency, and
- Liability if people consume your THC products and become sick as a result.
A recent incident in Virginia where a mother was arrested for murder after her toddler consumed THC gummies and died is only one of an alarming number of cases on the rise in the U.S. If your cannabis company is not in complete legal compliance with regulations, it (and possibly your personal assets) are on the line for significant liability exposure. Not to mention the catastrophic impact such an event would have upon you emotionally. No one who starts a new business venture thinks about the horrifying risk of the death of a child.
To protect your business, and perhaps more importantly, your peace of mind, it is imperative that you have agreements in place to help safeguard against potentially devastating disasters. The primary goal should be to build a commercially responsible company from the foundation up.
However, putting everything “legal” in place is just one part of properly insulating your business. The question is, do you, as a budding THC visionary, need an attorney to facilitate setting up contracts and all other necessary legal documentation?
The answer is, “Yes. You do.”
While you may think it is a simple shortcut to use the one-size-fits-all approach and avail yourself of an online legal services platform, think again. Initially, it may be less expensive (and I say “may” because I have heard horror stories – do not get me started). However, in the long run, my clients’ experiences have shown that the inexpensive fill-in-the-blank contracts eventually cost them much more because, like snowflakes, no two businesses are alike. A legal services platform doesn’t distinguish or identify your unique circumstances and draft accordingly.
It is essential to have the sound legal advice and strategy that is specifically tailored to your business. Save the cookie-cutter approach for holiday bake-offs.
Growing a company without legal counsel can lead to unexpected costs and delays that ultimately create additional expenses for you, the owner. An online robot will not call or text with a legal update that impacts your business and requires updates to your contracts or impacts other areas of your business.
My advice? Find a lawyer (or two) you want to work with and develop those relationships. If you are ready to step into serious business growth, grab a spot on my calendar, and let’s explore whether or not we are a good fit.
At S Burns Legal LLC, we guide you from “planting season” through “harvest time.” Our goal is to provide our clients with personalized support as they expand their unique businesses. We’ve been known to provide some sage, strategic business advice along the way, too.
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