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Bad Contracts: The Roots of Hemp Litigation 

November 10, 2020

Bad contracts cause disputes. Many hemp lawsuits owe their origin to contracts that are poorly specified, unclear, incomplete, or self-contradictory. Striving to write good contracts is the first line of defense against the risk of disappointed expectations and costly litigation. 

Companies who do business together hardly ever set out with bad intentions. When businesses collaborate, each believes that it will benefit from the other’s unique contributions. They want each other to succeed. 

In the hemp industry, it is common for companies across the supply chain to seek out one another’s talents and resources for shared projects. By non-exhaustive example, when hemp farmers buy their seed, they buy from seed producers; when oil processors buy hemp biomass, they buy from hemp farmers or brokers, and when product manufacturers need extracted cannabinoid-rich oil, they procure it from processors. Over the cycle of seed to final sale, hemp passes through many hands. 

It is in these transactions where the value of a well-drafted contract is so clear. To continue with the first of the above examples, a seed producer might promise farmers that its seeds will produce hemp biomass with specific amounts of cannabinoids (like cannabidiol or “CBD”); but if that promise is not clearly laid out in the contract, how can the farmer hold the seller accountable for the results? Similarly, and at the very least, a good contract would account for the process of determining that the subject seed was of the quality, potency, or other specifications represented to the buyer. In other words, there should be no question between the parties as to how their expectations of one another will be met. Their contract should accurately capture the intent of both the seller and the buyer. 

One of the most common areas where hemp litigation arises is at the processing stage, where certain levels of potency and/or composition of hemp extract are promised and/or expected, but where — as with the seed sales discussed above — the parties have not set forth the particular details for how those benchmarks can be achieved and are measured. Simply contracting for hemp oil of “X% potency” or even “X% CBD” is likely insufficient to establish objective expectations of performance. The parties to this type of transaction should strive to be as specific as possible about what they are expecting, how they are anticipating such a goal to be achieved, and which process the parties agree to use in order to confirm performance. 

Otherwise, where parties have not thoroughly and specifically contracted, disputes are inevitable. Understandably, even businesses that entered their shared project with the best intentions become unsatisfied and even angry when things do not go the way that was discussed, promised, or understood during the preceding conceptual and negotiation phases. When there is no shared standard of expectation, no shared process for quantifying whether that standard is met, and no shared solution for navigating conflicts, disagreement is just a matter of time. 

Regardless of where a given business sits in the supply chain and how well it gets along with the companies it works with, there is no substitute for a well-written contract that sets forth in sufficient detail and clarity what each party may expect to do and how they might respond if anything goes wrong. Taking the time to consult with legal counsel to write and review sound contracts is not just the best way to avoid and mitigate conflict; it is good business. 

The views and opinions expressed in the article represent the view of the author and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is intended to be a substitute for professional legal advice.

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