Our friends at Harris Bricken take a hard look at making contracts in the cannabis industry
Author: Jonathan Bench
If you’re still at the point where you are playing lawyer sometimes or all of the time with your cannabis business contracts, then this post is for you.
I grew up in rural Wisconsin with two parents who were raised in the wake of the Great Depression. My parents had a bunch of kids, and we did not have a lot of extra money beyond covering our necessities. I share this because when I talk to prospective cannabis clients who are worried about finances, I understand where they are coming from. They always want to know if we can discount our fees or sign off on a boilerplate contract they bought for $50 online or cobbled together from a few other contracts. Unfortunately for them – but also fortunately for them – we don’t work like that because nothing we do is boilerplate.
Lawyers and businesspeople talk about boilerplate in contracts, but hemp and marijuana business owners throw the term around differently than lawyers do. When business owners talk about boilerplate, they use the term to encompass any contract or contract term they think doesn’t matter very much. Often I hear, “We have already put together the business terms – you just fill in the boilerplate.”
I know that a lot of non-lawyers do not read every word of every contract they sign. When lawyers talk about boilerplate, we’re referring only to those parts of the contract that generally come at the end of the contract. That is the part of the contract that most non-lawyers never read and even some lawyers gloss over.
Good lawyers read every word, and they also know that every word in a contract matters. These traditional boilerplate sections can hide some very important contract terms, especially if you care about where you may end up litigating a business dispute, on what terms you can unwind a bad business deal, and who is going to be responsible for what types of breaches during the relationship:
- Governing Law
- Dispute Resolution
- Attorney’s Fees
- Representations and Warranties
- Statute of Limitations
Many non-lawyers might not suspect this, but the definitions section of a cannabis contract is often the longest boilerplate section of a contract that can kill your business deal. These definition sections often run 10+ pages in larger deals, and those boring definitions often hide the most material business terms of the contract.
I once participated in a multi-million dollar deal with a post-closing adjustment to the purchase price that was in the definition section. We encouraged our client and the other side several times to ensure someone on their side had translated those words into actual figures on a spreadsheet. Both sides assured us they had done so, but guess what? The other side miscalculated the purchase price adjustment to the tune of over one million dollars. We got a panicked call from the other lawyer after the closing asking if we would agree to insert one more line of text into the final version of the agreement.
Good cannabis lawyers help you both represent your business terms accurately and also help you eliminate ambiguities from your contract (and therefore your business relationships). Ambiguity is bad because that is what people fight about. If the contract terms are clear when one party has beef with the other, then the dispute can often be settled fairly quickly without resorting to formal dispute resolution.
If you happen to be an inveterate DIY’er when it comes to your cannabis business contracts or want to look over your lawyer’s shoulder, then read the business terms and the definitions first. Make sure the definitions match the business terms. Then make sure those definitions are used consistently across the contract.
I have never seen a great cannabis contract that was written by a non-lawyer. I have seen some subpar contracts written by lawyers. Often these less than ideal contracts do not matter because both sides are reasonable and work together through any difficulties. But if you anticipate any friction now or later in your cannabis business relationships, you’re better off having your cannabis lawyer review the business terms and the boilerplate.
For related posts, check out the following:
- Marijuana Contracts: The Trouble with Forms
- Marijuana Companies: Better to Be Formal
- Why Handshake Cannabis Deals are BAD
- Running a Cannabis Business? Write it Down
Source Canna Law Blog, Click Here