As longtime Los Angeles cannabis business lawyers, we recognize that there are significant legal barriers to entry in California’s legal marijuana market. For this reason, an increasing number of smaller farmers are jumping on the bandwagon of something called “contract cannabis farming.” This is a common practice in mainstream agriculture that is just starting to gain steam in the cannabis market.

These types of contracts diverge from the normal model of cultivation employment, and they can even vary significantly from contract to contract. Basically land owners gain the appropriate cultivation permits from local and state authorities. From there, they contract with experienced cannabis crop growers who conduct the actual farming. Many of these farmers are legacy growers who weren’t successful in landing their own state cultivation permits due to so many barriers to entry. The land owners and the growers then split the profits. Additionally, farmers get their foot in the door of an industry they may not have otherwise. That could result in more opportunities down the line.

Cultivation contracts vary in length and scope, but they typically last a year or so, but some continue in perpetuity until one or both parties dissolves the relationship. Neither should enter such an agreement until having it carefully examined by a California cannabis business lawyer experienced in contract drafting and review. The importance of this is underscored by the fact that there have been numerous lawsuits stemming from these arrangements, with allegations including fraud, breach of contract and labor law violations.

Legal Challenges Involving California Cannabis Farming Contracts

Contract cannabis farming is more common than it used to be, particularly since the adult-legal recreational market has taken off.

Among some of the legal battles that have stemmed from California cannabis farming contracts, as reported by Marijuana Business Daily, were two similar cases filed at opposite ends of the state late last year. They involved farmers who alleged they were taken advantage of by landowners with cultivation licensing. The farmers were reportedly lured into doing all the farming work, but were never paid after the crops were harvested.

In one of the lawsuits, the plaintiff in Sacramento County alleges the defendants, a family company that owns and operates numerous marijuana businesses, defrauded the plaintiffs of some $1.3 million in its sharecropping agreement over the course of two years, plus another $700,000 in crop profits.

In another lawsuit, filed in Los Angeles County, plaintiffs allege they were cheated out of $700,000 in crop profits, plus another $500,000 that plaintiffs had paid to help get the farm up and running.

In both cases, the land owners had the money, the land and the permits – they just didn’t know how to successfully grow and harvest cannabis. Our Los Angeles cannabis contract attorneys note this situation is one with high potential for abuse.

Sharecropping in general isn’t knew to the marijuana industry, and many recognize it as a prime avenue to getting established in the market. Some liken it to an apprenticeship, where individuals learn how to manage another person’s farm before they can take on their own. But serious problems can arise when cannabis contracts aren’t meticulously drawn up. Every detail must be carefully communicated, and there must be stipulations for how to handle what should happen if the farm runs at a loss one season rather than a profit.

Having the specifics clearly and concisely stated in every cannabis contract is critical. We can help.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, ancillary companies, patients, doctors and those facing marijuana charges. Call us at 714-937-2050.

Additional Resources:

Contract cannabis farming gaining popularity in California, but practice draws lawsuits, July 15, 2020, By John Schroyer, Marijuana Business Daily

SOURCE:  https://www.marijuanalawyerblog.com/the-legal-complexities-of-california-contract-cannabis-farming/