The cannabis industry is one of the most litigious in the country. Our lawyers have been leaders in cannabis litigation for years, specializing in founder, investor, partnership and ownership disputes within the smallest startups and the largest multi-state operations. In fact, some of our work has been featured in local and national media.
Our substantial experience has taught us valuable lessons about deciding whether, and how, to file and defend serious cannabis litigation. With that experience comes industry wisdom. Cannabis investors and businesses do well to consult with us before launching expensive litigation.
Please be sure to scroll down to see our full disclaimer regarding cannabis litigation services. In summary, (1) we only litigate for good faith licensed operators and do not provide regulatory, compliance, or business strategy advice, and (2) there is a conflict between federal and state law regulating cannabis: California law permits and regulates conduct that is criminal under federal law. Much of the conduct permitted under California’s regulatory scheme is still subject to prosecution as a federal felony or misdemeanor, and compliance with state law is unlikely to provide a defense to federal prosecution.
We offer the following cannabis litigation services:
Founder & Partnership Disputes
We have seen, and handled, a flood of disputes between founders and partners in startup cannabis businesses. Whether our clients need to eject a bad business partner, dissolve a failed partnership, recover their assets after a buyout, rescind a partnership, or prove no partnership ever existed in the first place, we’ve done it before and will make sure we do it again. We prioritize moving your business forward and protecting your investment and wealth no matter how severe the obstacles.
Hired Gun Co-Counsel
We are proud to regularly provide “hired gun” expert co-counsel in complex cannabis litigation with prominent local and national law firms. We have assisted with discovery and litigation strategy, and handled high stakes appearances and negotiations, alongside some of the best lawyers in the country.
Investor Protection & Recovery
The cannabis industry has seen incredible growth and investor opportunity, as well as incredible losses and mismanagement. We will never pursue investor litigation just because the business cycle did not reward a particular company, but we scour the evidence to determine whether wrongdoing caused losses. While the nuts and bolts of this practice area are more thoroughly explained on our Shareholder & Derivative Litigation page, what is most important is we are subject matter experts at recovering losses suffered by cannabis investors.
Traditional Business Disputes
The cannabis industry constantly spins off traditional business disputes with cannabis industry twists. We routinely handle the entire scope of traditional disputes between cannabis businesses, whether they be trade secret, unfair competition, trademark, breach of contract, fraud, rescission, or other claims. Don’t make the mistake of litigating cannabis business disputes without the expertise of veteran cannabis litigators; it’s not the same old business dispute if it involves a cannabis company.
Litigation Exposure Analysis
Mergers and acquisitions in the cannabis industry are common. So are complicated organizational structures. Before finalizing a large deal or restructuring in this industry, we strongly encourage you to seek the advice of experienced cannabis litigators who can identify vulnerabilities, misaligned interests, or unworkable terms before you approve the deal. Because the cannabis industry is so litigious, this advice can stave off disaster.
DISCLAIMER REGARDING REPRESENTATION OF LICENSED CANNABIS BUSINESS :
What follows heavily paraphrases, and slightly modifies and expands upon, the excellent Formal Opinion No. 2020-202 from the State Bar of California Standing Committee on Prof. Responsibility and Conduct, available in full here.
Federal law and California law differ in their approach to the cultivation, possession, distribution and sale of cannabis. Under the federal Controlled Substance Act (CSA), it is still illegal to manufacture, distribute or dispense a controlled substance, including cannabis, or to possess a controlled substance with intent to do any of those things. (21 U.S.C. § 841(a)(1); 21 U.S.C. § 812, Schedules I(c)(10) and (d)). Depending on the quantities involved and other factors, penalties for violating those laws can range from five years to life imprisonment. (21 U.S.C. §§ 841(b)(1)(A)-(B), 960(b).) A person who “aids, abets, counsels, commands, induces or procures” the commission of a federal offense or who conspires in its commission is punishable as a principal to the offense. (18 U.S.C. § 2(a); 18 U.S.C. § 371; 18 USC § 846.) It is also illegal under federal law to possess cannabis even for personal medicinal use. Id. §§ 812, 844(a). In certain circumstances, persons taking proceeds from a cannabis business may also be charged under federal money laundering statutes. (18 U.S.C §§ 1956-57.) In addition to criminal prosecution, persons engaged in the production, distribution or sale of cannabis in violation of federal law are subject to forfeiture of both the assets used in operating that business and the proceeds traceable to its operation. (18 U.S.C. §§ 981, 983.) Such assets could include bank accounts, investor profits, including those already paid out to investors, land and buildings.
Accordingly, it is critical that potential clients be aware of the following:
- Due to the federal illegality of the cannabis industry, there is the real possibility that attorney-client communications relating to ongoing cannabis business that is lawful in California might still be subject to discovery due to the crime-fraud exception to the attorney-client privilege.
- While Mancini Shenk LLP litigates civil disputes arising from the cannabis industry, Mancini Shenk LLP does not advise or advocate regarding regulatory compliance, licensure, local or state government activity, political activity, or questions of legality arising from business activity in the cannabis industry.
- Mancini Shenk LLP will not represent any cannabis industry business, operator, owner, manager, officer, or director unless Mancini Shenk LLP believes that such potential client is engaged in a good faith effort to comply with California law.
- Mancini Shenk LLP will not represent any cannabis industry business, operator, owner, manager, officer, or director operating an unlicensed cannabis business.
California has legalized both medical and adult recreational use. The California approach to medical cannabis was originally codified in the Compassionate Use Act of 1996 (“CUA”), Health and Safety Code section 11362.5, as supplemented by the Medical Marijuana Program Act (“MMPA”), addressing the prescription, possession and use of cannabis for medicinal purposes. That statute has now been greatly expanded and, in significant part, replaced by the Medicinal and Adult-Use Cannabis Regulation and Safety Act of 2017 (“MAUCRSA”), which comprehensively regulates cultivation, transport, distribution and sale of cannabis for both medicinal and adult recreational use. This statutory framework has in turn given rise to an extensive scheme of regulations promulgated by the Bureau of Cannabis Control (Cal. Code Regs., tit. 16, § 5000 et seq.), the California Department of Public Health (Cal. Code Regs., tit. 17, § 40100 et seq.), and the California Department of Food and Agriculture (Cal. Code Regs., tit. 3, § 8000 et seq.). Possession, prescription, use, cultivation, transportation, distribution, testing and sale of cannabis in compliance with the CUA, MMPA, and MAUCRSA is not subject to criminal punishment or assets seizure under state law. (Health & Safety Code, §§ 11362.5(c), 11362.5(d), 11362.7-.83; Bus. & Prof. Code, § 26032(a).) However, conduct falling outside those boundaries remains subject to criminal prosecution and civil forfeiture under state law. (Health & Saf. Code, §§ 11357-61, 11469-95.)
Because California law permits and regulates conduct that is criminal under federal law, there is a conflict between federal and state law regulating cannabis. There is authority that regulation of intrastate cultivation, possession, use, and commercialization of cannabis is a lawful exercise of Congressional power to regulate interstate commerce. (Gonzales v. Raich (2005) 545 U.S. 1, 29 [125 S.Ct. 2195].) It is also clear that federal law will not recognize a defense of medical necessity to a prosecution under the CSA, where a necessity defense for marijuana is not provided by statute, even in a state which has legalized and regulated medical cannabis. (United States v. Oakland Cannabis Buyers’ Cooperative (2001) 532 U.S. 483 [121 S.Ct. 1711].) Accordingly, California courts construing the CUA and MMPA have concluded that the permissions and exemptions granted by those statutes under California law have “no impact on the legality of medical marijuana under federal law.” (City of Garden Grove v. Superior Court (2007) 157 Cal.App.4th 355, 385 [68 Cal.Rptr.3d 656]; see also, Qualified Patients Ass’n v. City of Anaheim (2010) 187 Cal.App.4th 734 [115 Cal.Rptr.3d 89].) At the same time, California cannabis laws are not preempted by federal law. There is no express or field preemption relating to cannabis. (Id. at pp. 756-58.) Moreover, because California has chosen to legalize complying cannabis related activities by suspending state criminal law enforcement, rather than by requiring conduct unlawful under federal law, there is no direct conflict preemption. (City of Garden Grove v. Superior Court, supra, at p. 385; Qualified Patients Assn v. City of Anaheim, supra, at pp. 758-59.) Nor is there obstacle preemption, since state agencies cannot be compelled to enforce federal law under anti-commandeering principles and the ability of federal authorities to enforce those laws is unimpaired by California law. (Id. at pp. 758-63; County of San Diego v. San Diego NORML (2008) 165 Cal.App.4th 798, 826-827 [81 Cal.Rptr.3d 461].)
Although federal authorities have the power to enforce federal criminal law against persons who are exempt from state prosecution because they are in compliance with state law, they have used that power sparingly in recent years. In the so-called Cole Memorandum, the United States Department of Justice advised that it did not intend to use federal resources to prosecute under federal law, patients and their caregivers who were in “clear and unambiguous compliance” with state medical marijuana laws, except in cases involving broader issues of federal policy, such as sale to minors or money-laundering. (U.S. Department of Justice, Cole, J., Guidance Regarding Marijuana Enforcement [Memorandum], August 29, 2013.) More recently, then Attorney General Sessions declared that, given limited resources, federal prosecutors “should follow the well-established principles that govern all federal prosecutions” in deciding which marijuana cases to prosecute, and rescinded prior Justice Department guidance with respect to medical marijuana prosecutions as unnecessary. (U.S. Department of Justice, Sessions, J., Marijuana Enforcement [Memorandum], January 4, 2018.) In 2014, Congress passed the Rohrabacher-Farr amendment to an appropriations bill, which prohibited the Justice Department from spending appropriated funds to prevent enumerated states, including California, from implementing state laws that authorize the use, distribution, possession or cultivation of medical marijuana. That amendment has been renewed repeatedly since then, most recently in February 2019, and it has been interpreted as prohibiting federal prosecutors from spending funds for the prosecution of individuals who engage in conduct permitted by state medical marijuana laws and are in full compliance with those laws. (United States v. McIntosh (9th Cir. 2016) 833 F.3d 1163, 1177.)
In summary, California has established an extensive and complex scheme of state and local regulation of the production, distribution, and use of both medical and recreational cannabis. Compliance with that scheme only results in exemption from relevant state criminal penalties, while non-compliance can lead to criminal and civil sanctions under state law. Much of the conduct permitted under California’s regulatory scheme is still subject to prosecution as a federal felony or misdemeanor; under the federal scheme, compliance with state law is unlikely to provide a defense to federal prosecution.
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