To get across the monumental limitations to entry for California’s authorized marijuana business, a rising variety of small farmers are more and more turning to a practice mainstream agriculture has used for generations: so-called “contract farming.”
It’s a special enterprise mannequin from common employment by a cultivation firm, and the sorts of contracts can differ extensively.
In brief, landowners acquire native and state cultivation permits after which deliver on skilled marijuana growers to do the precise farming, with the promise of splitting earnings from the crop.
“It is common. We’ve done a ton of agreements of this type in the last two years,” mentioned Heather Burke, an legal professional in Nevada City who works primarily with legacy growers, lots of whom had been unable to get state cultivation permits on their very own after 2018 due to numerous limitations to entry.
“It’s actually a wonderful way for a legacy farmer who didn’t get access to the market to get their foot in,” she added.
Though Burke mentioned her shoppers haven’t had any points with such preparations, no less than two lawsuits have been filed over such offers which have fallen via, with allegations that embrace fraud, breach of contract and labor regulation violations.
In one battle, the landowner-farmer deal was even known as “sharecropping,” which for some – like Burke – is objectionable as a result of the time period is related to racial oppression of Blacks via agriculture.
San Francisco legal professional Katy Young filed two lawsuits in December, each associated to eerily related conditions.
Her shoppers claimed they had been abused by landowners who held cultivation licenses and lured them into rising marijuana for them, solely to go away the plaintiffs excessive and dry when it got here time to gather on the crops.
That was the primary Young had heard of contract farming as a enterprise mannequin for marijuana growers, since most California cannabis farms are historically run by a single firm that retains all of the earnings.
But since then, she’s realized how widespread the practice has turn out to be since 2018, when the state’s adult-use market kicked off.
“It’s all over,” Young mentioned, noting that certainly one of her shoppers relies in Northern California and the opposite in Southern California, a whole lot of miles aside.
The first go well with, filed in Sacramento County Superior Court by an organization known as Spooky Action and its officers, alleges that the defendants – a household that runs a number of cannabis corporations – defrauded them out of $1.three million via a “sharecropping agreement” that lasted from 2017 to 2019.
Then, the go well with contends, the household cheated the plaintiffs out of their share of earnings from a crop value $700,000.
The second go well with, filed in Los Angeles County Superior Court by an organization known as Right Brothers Management, alleges that an organization in Lompoc run by a “wolf dressed in sheep’s clothing” cheated the plaintiffs out of $750,000 value of cannabis grown and bought in 2018, together with practically $500,000 that the Right Brothers paid to get the farm operational.
The widespread thread between the 2 conditions, Young mentioned, was the landowners had many of the capital they wanted, together with the requisite permits, but lacked the know-how to develop marijuana profitably.
“The thread that pulls them together is the huge potential for abuse,” Young mentioned. “This speaks to the regulatory setup.
“It’s so expensive to become a cannabis cultivator that this type of arrangement is the cheapest and easiest way for legacy growers to get into the market. It happens everywhere.”
Both lawsuits are ongoing.
‘Sharecropping’ in California cannabis
The practice itself – of landowners coming into into contracts with farmers to develop marijuana – is nothing new, mentioned Hezekiah Allen, board chair of California cannabis farmer cooperative Emerald Grown.
Allen, who grew up in Humboldt County, the guts of California’s Emerald Triangle, mentioned he took half in such a deal himself from 2006 to 2008.
“I was a sharecropper for a few years. It was kind of how you got established in the business,” Allen mentioned.
In that sense, he mentioned, it was akin to “an apprenticeship, where you manage someone else’s farm for less than you were worth before you got your own farm.”
These days, Allen mentioned, it’s extra a query of exactly how such agreements and contracts are structured, which he famous can typically get “messy.”
He recalled some buddies from the Triangle even stepping into fistfights over who owed whom and the way a lot.
“These things are rife with miscommunication,” Allen mentioned, including that an apparent drawback could possibly be if a farm runs at a loss as an alternative of a revenue. If there aren’t any earnings to separate, that’s a scenario ripe for a dispute between the companions.
Burke agreed, saying the specifics in written contracts with such offers are essential.
In brief, everybody concerned ought to know precisely the place they stand, notably as a result of the authorized market remains to be evolving from the old-school method of doing enterprise with a handshake.
“In the new world,” Burke mentioned, “it’s important to parse out, ‘What is this? Is this an equity type of analysis that’s going to vest in possession? Is this a three way partnership between the 2 of you? Or is that this a straight-up administration settlement? Are you paying somebody to come back in and handle the develop?’
“It could be any number of relationships,” she added. “And because of the volatility of the market, it could be any number of contractual relationships that could be characterized as contract farming.”
The backside line for Burke and others is that contract farming will most likely turn out to be extra widespread as time goes on.
“It’s pretty beneficial. It allows a lot of flexibility in a very rigid marketplace,” Burke mentioned.
John Schroyer will be reached at [email protected]