Should Cannabis Disputes Be Arbitrated?
The topic of this post is raised by an International Business Times article announcing the formation of the Cannabis Dispute Resolution Institute “a Denver nonprofit that aims to be the world’s first arbitration organization focused on marijuana.” Here are some excerpts from the article beginning with the dilemma faced by marijuana business people:
At the time, the lawsuit must have seemed like an open-and-shut case. In August 2010, Arizona entrepreneurs Mark Haile and Michele Hammer each loaned $250,000 to Today’s Health Care II, aka “THC,” a medical marijuana dispensary in Colorado Springs, Colorado. But in March 2011, THC defaulted on its loan, which meant that, according to the contract, the dispensary had to repay the principal loan at a default interest rate of 21 percent. When THC didn’t do so, the two lenders sued the business in Arizona Superior Court in order to enforce their agreement.
That didn’t happen.
That April, Judge Michael McVey threw out the lawsuit. The dismissal wasn’t due to errors in the contract or mistakes made by Haile or Hammer. The problem was the loan was for a marijuana business. In his ruling, which he admitted was “harsh,” McVey noted: “The explicitly stated purpose of these loan agreements was to finance the sale and distribution of marijuana. This was in clear violation of the laws of the United States. As such, this contract is void and unenforceable.”
“The cannabis industry is in a weird position because a lot of issues that other industries might handle in the court system are a little more fraught in the marijuana industry because everything brings up federal oversight, federal illegality, conflicts between state and federal law,” says Taylor West, deputy director of the National Cannabis Industry Association. “There is just this added wild card any time you are looking into the court system.”
The founders [of the Cannabis Dispute Resolution Institute] say they’ve hit upon the sort of legal protection and stability all of these other businesses desperately need. That’s because according to the Federal Arbitration Act and repeated court decisions, arbitration arrangements are legally binding — even if the matters being arbitrated are potentially illegal in the eyes of the court.
In short, CDRA aims to use federal arbitration law to circumnavigate federal drug law.
“The industry is being denied access to justice,” says Michael Reilly, one of CDRI’s principal founders and chairman of its advisory board. “Through arbitration, we can end up with a legal resolution to a dispute. There is a chance to be on the leading edge of this whole process.”
As the readers of this blog surely know, arbitration has its fans and its foes. The founders of the Institute are aware of this:
Finally, while bringing a notoriously pro-corporation dispute-resolution mechanism into the cannabis industry might be cause for concern among those who are already afraid that big-money interests are taking over the marijuana movement, Wells insists that CDRI isn’t just about helping marijuana businesses. It’s also about fixing the arbitration industry so it benefits everyone, he says. Among other things, CDRI arbitrations will allow parties the right to discovery, which many arbitration proceedings now limit, meaning that relevant company records won’t be able to be concealed as part of the process. And when one of the parties is a consumer or an employee, the company on the other side of the dispute will shoulder 70 percent of arbitration costs.
“Arbitration has gone completely overboard in America,” Wells says. “We are taking a very different approach. We are trying to push the pendulum back in the other direction. Instead of arbitration being seen as obtrusive to the little guy, we at least want an equal playing filed and a fair fight.”
This is all very interesting as another example of the fascinatingly fractured relationship between federal and state marijuana law. Put me in the “fine for b2b disputes but still worried about individuals camp.” Comments please.