Entry into today’s cannabis space is rife with obstacles posed by states with opaque licensing awarding procedures, caps on entry, as well as other challenges set in motion by local governments (and local officials) seeking bounty of all sorts for the privilege of operating a business within the city, town or county’s physical boundaries.
In the last few years, we’ve seen lawmakers pass imperfect laws that intentionally or negligently include loopholes that undermine a law’s stated purpose and that can be contorted—for example, to benefit multi-state operators over social equity beneficiaries. Government officials (often behind closed doors) sometimes steer their associates, friends, or those to whom they have ties to the prizes of cannabis licenses, zoning allowances, and/or amenable community host agreement buy-ins. It feels to many that the deck is rigged. Grumbling does little because unless confronted by lawyers or litigation (of the criminal or civil litigation kind), those involved typically deny any impropriety.
As a result, civil lawsuits against states and localities are becoming commonplace. Consider the flurry of civil litigation in Illinois against the way it awards licenses, or the December 2021 lawsuit filed against the city of Gloucester, Mass., sued by a cannabis operator for charging almost $500,000 as a “community impact fee” above the state’s statutory limit for a cannabis company seeking to operate in that bucolic seaside city. The cannabis business operator’s lawyers there allege that the fees, excess taxes, and charitable giveaways are in no way reasonably related to the costs incurred by the municipality to permit the business to operate in the city. The cannabis company lawyers are also asking the court to bar the city from assessing such fees and have even asked the court to order the city to refund some of the money already paid.
The lawsuit is indicative of those broader trends within the regulated cannabis space.
What’s a Cannabis Operator to Do?
What’s a cannabis entrepreneur or license applicant to do when encountering these situations that can RANGE from ethically murky to downright illegal? One must resist the temptation to say, “Well, everyone is doing it to get in, so why not me?” That approach could get you criminally indicted.
Here are 7 steps cannabis operators can take when dealing with difficult, if not outright illegal, government situations.Vigilantly resist the temptation to pay-to-play. Participating in these schemes could easily lead to being charged in a federal corruption case. Decline all invitations to pay money or provide things of value to public officials. (Be careful of campaign contributions too, because in some cases when linked to getting political access, the making of contributions has been charged as a corrupt act.)
Keep complete and accurate records of the business. This includes all communications with decisionmakers and their emissaries (all applications, correspondence, emails, and texts).Understand that everything said to anyone anywhere (on the phone or in the street) could be recorded. Anything created on or with a computer or said or typed into a phone screen can be subpoenaed or be the subject of a search warrant.