America’s top cannabis events of 4/20 2024

Wiz Khalifa, Gucci Mane, and our own senior editor David Downs are in the mix this 420.

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It’s official: Florida will vote on legal weed in November!

After a long legal battle, Amendment 3 will appear on the 2024 ballot. It needs the support of 60% of Florida voters in order to pass.

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Cannabis Contracts 101: Authority and Why it Matters

Cannabis contracts are – in the simplest sense – binding agreements between two parties. But how you get to something being “binding” can be complicated. And in the cannabis industry, where things move a mile a second and people often overlook basic contract requirements, the results can be disastrous. Today I want to focus on a concept known as “authority” and explain why I think it is so critical for the cannabis industry.

What is the deal with authority in cannabis contracts?

When an individual who is (a) an adult, (b) not under duress, and (c) of sound mind enters into a contract, there is almost no question it is binding. [Yes, we are talking about cannabis contracts and federal illegality is an issue, but let’s put that to the side for a second.]

But what about contracts with entities as parties? While you’ve probably heard of things like corporate personhood, and seen contract definitions of “person” to include entities, in reality entities are legal creations and cannot physically sign contracts or do anything else. Companies act through employees or other authorized people, commonly referred to as “agents.”

The thing about agents is that they need to be authorized to take certain actions on behalf of a company. If they are not so authorized, then they have no legal ability to bind the company and their signature on a contract is not binding — with some key “catches” that I discuss below.

How does an agent get authority?

There are a few ways that agents are given authority to act on behalf of a company. Officers of a corporation are given authority by the shareholders in governing documents like bylaws. A president or CEO, for example, will usually have broad authority to sign contracts on behalf of a company. Other people, like employees or contractors, will be given authority (if at all) in their employment or other contracts.

Generally, the lower one gets on the corporate hierarchy, the less authority one has. A person working in procurement may be given authority to execute purchase agreements, but not to enter into a merger agreement. So a good employment agreement will clearly limit an employee or agent’s actual authority.

Even CEOs and presidents are often restricted in what kinds of things they may do. For example, shareholders or directors of a company may not want a CEO to purchase Lamborghinis with company funds, so they may require that the CEO obtains consent of the shareholders or directors prior to making purchases over $X. The shareholders may even place additional restrictions on the board of directors so that there is a hierarchy of consents that must be obtained before the CEO is authorized to pull the trigger one or (usually) many types of contracts.

What about “apparent” authority

Where the rubber can often hit the road is when a company’s employee or agent enters into a transaction for which they had no authority. For example, say the CEO of a company enters into a purchase contract for a distribution van costing $75,000, but the company’s governing agreements required board approval for purchases over $50,000. Say the CEO didn’t get board approval and the board wants to unwind the transaction. The van’s seller understandably won’t want to unwind the transaction and litigation will probably ensue.

So who wins in these cases? The answer depends on a concept known as “apparent authority,” where a third party reasonably (the key word) infers that the person is an authorized agent of the entity they are trying to bind. In the example given above, the van seller will argue it inferred that the CEO of the company had authority to buy a van. And the seller will argue that its inference was reasonable since CEOs are the highest corporate officers and generally have such authority. And unless the seller had knowledge of the CEO’s restriction in the company’s governing documents — which, for private companies, are not public records — he’ll have a pretty good chance of prevailing.

The policy behind apparent authority is self-evident. We don’t want a system where a transacting party with no reason to believe the other signor lacked authority to suddenly be forced to unwind transactions.

What can companies do to avoid apparent authority problems?

Both sides of a transaction can take steps to avoid the issues mentioned above. A company can make sure that its agents are fully aware of an understand the limits on their authority. This of course won’t completely eliminate the risks when it comes to high-level officers, but it will at least help.

On the other hand, the other side to a contract can:

• Verify that the person signing for the company is who they claim to be – some corporate officers will be listed on the state’s secretary of state database;
• Include a representation in the contract that the person is authorized, and make sure their title is clearly identified;
• In bigger transactions, request the company’s governing documents and/or a resolution from the board of directors allowing the signor to sign; and
• Refusing to sign a contract with someone who does not appear to be authorized, depending on the circumstances. With respect to this last point, a company that wants to acquire a business will want to make sure, for example, that the signing party is the CEO, President, or something similar, and not a mailroom employee.

None of these issues are ironclad, but they can help avoid some painful issues later down the road.

What about ratification?

To address one last point, what happens if someone without authority signs a contract on behalf of a company, and the company wants to remain “in” the contract despite the signor’s lack of authority? In that case, the company’s board of directors, shareholders, or other persons with authority can “ratify” the agreement. This is usually done via a written resolution or at a meeting.

You might be asking whether this is strictly necessary or just overkill – i.e., why can’t the company just leave things where they stand and move forward without yet another piece of paper? Proper ratification is a critical step in the corporate governance process, and can avoid a lot of pitfalls down the road. Ratification also helps to clarify what the signing employee or agent can and can’t do, and to reinforce the limits of their authority.

Conclusion

Even something as simple as who should sign a contract for a company can be extremely complicated. But thinking critically through these issues can avoid expense, wasted time, and even litigation.

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Florida Court OK’s Canna Initiative

On April 1, 2024, the Florida Supreme Court gave the green light to a ballot initiative to legalize adult-use marijuana. The court’s 5-2 opinion, penned by Justice Grosshans, brings an end years of judicial hairsplitting that saw earlier legalization proposals derailed. At long last, Florida voters will have their say on whether recreational marijuana should be legal in the Sunshine State.

As Justice Grosshans explained, the court’s role was limited to assessing “whether the amendment conforms to the constitutionally mandated single-subject requirement, whether the ballot summary meets the statutory standard for clarity, and whether the amendment is facially invalid under the federal constitution.” With regard to the first consideration, the court found that the initiative’s components “have a natural and logical connection,” hence meeting the single-subject requirement.

The court then turned to the ballot initiative summary, which must use “clear and unambiguous language.” According to the summary, the proposed amendment “allows Medical Marijuana Treatment Centers, and other state licensed entities” (emphasis added) to sell marijuana. Opponents of the initiative argued that this language is misleading, as it would suggest that “other state licensed entities” would immediately be allowed to sell marijuana, when in fact they would have to undergo licensure. The court shot down this argument, noting that “the most natural reading of the word ‘allow’ suggests that other entities will be permitted to enter the market, subject to a state-licensing process” (emphasis added).

Finally, the court turned to a recent amendment that required it to consider “whether the proposed amendment is facially invalid under the United States Constitution.” In the court’s view, “in order for a facial challenge to succeed, we must find that a law would be unconstitutional in all of its applications,” (emphasis in original). Declining to make such a “broad finding,” the court noted that “a detailed analysis of the potential conflict between sections of this amendment and federal law is a task far afield from the core purpose of this advisory proceeding under the Florida Constitution.”

The court’s pronouncements in the present case (and similar recent ones) have no doubt helped engross the state’s jurisprudence on the subject of ballot initiatives — though one wonders if future initiatives on subjects far less controversial than cannabis will trouble justices as much. For now, though, constitutional law issues can take a backseat, as Florida gears up for Election Day. While getting the initiative on the ballot has been no small task for supporters, as the judicial history demonstrates, an electoral challenge now lies ahead. For the amendment to pass, it must obtain 60% of votes, with polls suggesting it will go down to the wire. Yet, no matter what happens, and despite the best efforts of cannabis opponents, democracy has won this battle.

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Dinner before dessert: GMO Cookies is April’s Leafly HighLight

Take us to stank town.

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Discover New Jersey’s premier cannabis brands: Top picks for 2024

Diving into New Jersey’s cannabis market feels a bit like stepping into a garden of endless possibilities. Here, every leaf tells a story, and every brand brings its own flavor to the table. With a landscape as diverse as the Garden State itself, cannabis enthusiasts and curious newcomers alike are spoiled for choice, navigating a […]

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Saving Oregon’s Cannabis Industry

Though the cannabis industry is one of America’s most lucrative new industries — with estimates that it will reach approximately $58 billion in sales by 2028 — the markets in several recreational states are suffering severe financial harm. In states like Oregon, the problems have gotten so out of hand that businesses are even pulling out of the state. And these problems are far from over.

California is probably the best example of such a problematic state, as I wrote last week. Last year, reports from the California Department of Tax and Fee Administration showed that the California cannabis industry’s total sales went down by a total of over eight percent from 2021 to 2022, which means approximately $400 million less of annual sales in a market as gargantuan as California’s — at least that was the case with the legal market, which California is doing little to protect. And according to recent sales figures for 2023, it looks like the total financial loss was even more substantial. Whereas nearly $5.4 billion in total sales occurred in 2022, a full $250 million less in overall sales when compared to the already troubled year of 2022. Unfortunately though, California’s problems are only a microcosm of the greater issues that the other states face or will soon face.

Oregon is not much better off. Its cannabis industry has been experiencing its own significant financial issues. Along with freefalling retail prices, Oregon’s cannabis industry has experienced a very similar pattern of two consecutive years of declining sales — just like California. And although Oregon’s market isn’t as vast as California’s, the proportionate financial losses are still just as observable.

Outright, the Oregon cannabis industry only broke $1 billion in total annual sales once, that being during the aftermath year of the pandemic that was 2021. In that year, the Oregon cannabis industry’s total sales peaked at a staggering $1.2 billion. Since then, total sales have continuously and noticeably dropped throughout the state. In total, licensed cannabis retailers in Oregon sold approximately $944 million worth of cannabis products in 2023, down a considerable $39 million from 2022, which itself was already a year of declined overall sales.

While the usual suspects are at play when it comes to the continuing decline of the Oregon cannabis industry, such as their own illicit market issues to big cannabis companies exiting the state, a then-progressive decision made during the state industry’s infancy may be a major culprit in the current widespread problems and struggles plaguing that very industry. While other states such as Nevada and Washington put a limit on how many recreational cannabis licenses could be allocated, Oregon didn’t implement any such restriction.

Although this was a unique regulation at first, the aftermath was a gross market oversaturation seen in almost no other state of its size. In total, Oregon has approved an astonishing 3,000 licenses for cultivation, production, or retail sales of cannabis. For a state with a population of 4.2 million and a tourism industry that doesn’t reach the magnitude of other west coast states, it shouldn’t require an economics degree from an Ivy League school to see why this would cause significant issues. This fierce imbalance of supply and demand made overall retail prices decrease to historic lows also not seen in any other state’s legal industry, with the average item price dropping $15.01 in February 2023 to $13.93 in February 2024 according to data aggregate site Headset.io.

From both a total sales and simultaneously a job creation standpoint, Oregon has suffered tremendously over the past year due to many high-profile exits from the state’s slumping industry. We expect to see even more exits, downsizing, and restructuring in the coming months as businesses struggle to stay afloat and make ends meet.

The oversaturation of Oregon’s cannabis industry is on the front end of problems the state and interested parties are trying to address. Moratoriums have been set up over the years starting in 2018 to cease from assigning further licenses, and the Cannabis Industry Alliance of Oregon (CIAO) is requesting that lawmakers and officials with the Oregon Liquor and Cannabis Commission continue this most recent moratorium set to expire in April. The bill has already passed through both houses and CIAO believes it will be signed by the Governor.

While there’s no way to directly address and possibly remedy the millions in total lost annual revenue, the moratorium on licenses may provide a small but assured remedy to the substantial problems that the Oregon cannabis industry has continuously been facing. Or at least it might be a first step. Oversaturation is certainly not the only problem facing Oregon’s cannabis industry, but if it is not addressed it could be devastating.

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