In California, though the hashish business has been deemed an “essential” enterprise[ii] within the midst of the crushing have an effect on that COVID-19 has had on the financial system, California courtroom closures could nonetheless carry some hashish operations to a screeching halt.  Often, the power of hashish companies to function in such a extremely regulated house requires strategic partnerships with others that may present entry to important assets reminiscent of hashish licenses/permits, industrial actual property, or funding capital.  But, what occurs when a dispute arises between enterprise companions which might be depending on each other to legally function?  Well, within the absence of a previous settlement between the events to resolve any disputes that will come up by way of ADR, events should resort to the courts for recourse.  And, within the age of COVID-19, litigating disputes in courtroom – an already sluggish and protracted course of – simply received a complete lot slower.

For occasion, in Los Angeles, California, the Superior Court, starting in March 2020, has applied a collection of measures in response to COVID-19, together with courtroom closures, continuances of all “non-essential” courtroom proceedings – together with most proceedings in reference to enterprise disputes – for the aim of prioritizing the adjudication of “essential” courtroom proceedings, and restricted courtroom employees.

Given this present state of affairs, these within the hashish enterprise ought to take into account together with ADR provisions in any settlement they enter into with strategic companions.

Mediation

Mediation is the method by which events to a dispute, whether or not or not it has developed into litigation, talk about the problems concerned within the dispute with a mutually agreed upon impartial third occasion (the mediator) – typically a retired choose or an skilled lawyer – for the aim of trying to informally resolve the dispute.  After listening to from either side, the mediator may also help the events assess the strengths and weaknesses of their respective positions.  But, like something, mediation has its benefits and drawbacks.

Perhaps the obvious benefit about mediation is the potential for events to rapidly resolve their disputes.  Indeed, mediation can typically be accomplished in simply sooner or later.  Moreover, mediation, not like courtroom proceedings, is confidential and closed to the general public, which will be an particularly engaging attribute to events within the hashish business.  Mediation additionally permits for versatile and artistic outcomes not essentially obtainable by way of judicial cures.  And, to the extent that dropping negotiating leverage is a priority when considering the proposal of mediation, hashish companies ought to take into account together with necessary mediation clauses of their enterprise contracts – earlier than there may be any dispute – in order that, within the occasion of a dispute, the events are contractually obligated to return to the negotiating desk earlier than initiating litigation.  In a profitable mediation, events not solely save a substantial period of time, additionally they save a substantial amount of cash by avoiding the ever-increasing prices of litigation.

On the opposite hand, mediating a dispute additionally comes with a price.  In addition to paying for their attorneys’ charges, events should additionally break up the price of the mediator, which may simply quantity to a four-figure expense for every day of mediation.  And, for events for whom conducting discovery would possibly assist to facilitate settlement, necessary mediation clauses would possibly name for the incurrence of this expense prematurely when events are missing proof that may substantiate their claims.

Nevertheless, some great benefits of mediation are inclined to outweigh the disadvantages, and, in the long term, events to a profitable mediation will save money and time, thereby permitting the events to get again to enterprise faster.

Arbitration

If, for no matter purpose, an off-the-cuff decision to a dispute is infeasible, moderately than resorting to the courts, hashish companies ought to take into account together with arbitration clauses of their contracts.  Arbitration is a personal course of the place an arbitrator – typically a retired choose – moderately than a choose or jury, decides the events’ case.  Arbitration could also be binding (that means events waive their proper to a trial and agree to simply accept the arbitrator’s choice as ultimate) or non-binding (that means events are free to request a trial if they don’t settle for the arbitrator’s choice).  Like mediation, arbitration additionally has its benefits and drawbacks.

Arbitration could be a nice various to conventional litigation as a result of it tends to be a sooner.  For occasion, in California, underneath regular circumstances, it’s typically tough to have a matter heard in an affordable timeframe because of the sheer quantity of circumstances that courts have on their dockets.  As alluded to above, COVID-19 has solely exacerbated this drawback.  Arbitrators have extra bandwidth to focus their consideration on a case than do most judges.  Arbitration additionally lends itself towards a extra streamlined course of for the reason that procedural necessities in arbitration are sometimes extra relaxed than in courtroom, thus permitting events to have the substance of their case determined extra rapidly.  And, faster rulings imply much less time paying a lawyer to acquire a ultimate ruling.  For hashish companies, arbitration will be particularly engaging as nicely as a result of, not like courtroom proceedings, arbitration proceedings are typically not open to the general public, nor are arbitration filings typically accessible by the general public.

The most evident unfavorable attribute with arbitration, nonetheless, is the further value of paying an arbitrator’s hourly charge for all the pieces they do in reference to a case, in further to paying attorneys’ charges.  If there’s a panel of a number of arbitrators, this extra value can add up rapidly.  And, whereas it might be faster than litigating a dispute in courtroom, a binding arbitration award is ultimate and never topic to attraction, leading to little redress for the non-prevailing occasion.

In most circumstances, nonetheless, if a speedy, value efficient, and confidential choice is the aim, arbitration might be a better option than going to courtroom, particularly within the age of COVID-19.

As a common matter, one of many key advantages of ADR is events’ skill to pick out a impartial decision-maker – i.e., an arbitrator or a mediator, because the case could also be.  And, as hashish disputes are more and more getting resolved by way of ADR, there may be an rising cohort of neutrals with authorized expertise within the hashish business that sitting judges merely could not have.

The skilled legal professionals, together with on Sheppard Mullin’s Cannabis Industry Team, can help hashish and ancillary companies within the drafting of enterprise contracts to advertise the decision of disputes by way of ADR, in addition to within the mediation and/or arbitration of such disputes, ought to they come up. Please contact the authors for extra data on how we would help in your matter.

FOOTNOTES

[i] American Arbitration Association. (2020) 2019 Annual Report And Financial Statements. https://www.adr.org/sites/default/files/document_repository/AAA_AnnualReport_2019.pdf

[ii] “Notice Regarding COVID-19 And Commercial Cannabis Business.”  Bureau Of Cannabis Control, 21 March 2020, https://bcc.ca.gov/about_us/documents/media_20200321.pdf. Press launch.

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