United States: Cannabis And Coronavirus: Issues For Cannabis-Related Businesses To Overcome
06 April 2020
Thompson Coburn LLP
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As the rest of the world reels from the effects of COVID-19 and “social distancing,” the legal cannabis industry is feeling the pain as demand declines and sales suffer. Despite this and the general aversion toward in-person sales, many states and localities, such as New York and San Francisco, declared medical cannabis dispensaries to be “essential” business (in a similar fashion to pharmacies) that may remain open, but only for delivery and pickup sales. Similarly on the recreational side, Nevada has allowed dispensaries to remain open so long as such dispensaries comply with “social distancing” measures, though Nevada strongly prefers that consumers utilize online ordering and delivery services.
That’s not the only thing that cannabis related businesses have to contend with in the COVID-19-era; in states where cannabis dispensaries are under a closure order, such businesses (and other cannabis-related businesses throughout the supply chain) may be at risk of default due to provisions in their supply contracts relating to force majeure, material adverse changes, unforeseen risks and acts of god, as well as in their leases and loan documents. Additionally, cannabis related businesses must also comply with state and federal employment laws and regulations, which in the times of COVID-19 are fluid and in constant flux.
Force majeure and Material Adverse Change
Many contracts, including supply contracts and license agreements, contain force majeure clauses or termination for convenience clauses that excuses one or both of the parties from performing under the contract. Often, these clauses are triggered by language such as “natural disasters,”