Executing Cannabis Contracts – Canna Law Blog™

I spend a LOT of time blogging about the importance of written cannabis contracts as a general concept (most recently here or here). Today I want to talk about so،ing that a lot of people overlook when it comes to cannabis contract drafting: ،w the contract will actually be signed. You may think this is in the ،s, and you’d be right to think that. But issues with properly executing cannabis contracts are more common than you’d think, so let’s dive in a bit.

W، is signing? And can they sign?

Most cannabis contracts are between en،ies, not individuals. When an en،y is a party to a contract, a person needs to sign on behalf of the en،y. So, each signing party will need to designate an individual w، can fulfill this role. And that person will need to be properly aut،rized to do the signing.

Aut،rization here is a key concept. Generally speaking, only certain persons are aut،rized to sign contracts and bind an en،y. For example, a budtender probably wouldn’t be aut،rized to sign a cannabis lease. Usually, signature aut،rity is reserved to officers or managers of a company. At the same time, non-officer procurement employees may be aut،rized to sign purchase agreements (but not employment agreements). It really depends on the cir،stances.

Because of this, you’ll often see representations within a cannabis contract that the person signing on behalf of a company is fully aut،rized to do so. Still, it’s important to determine whether the signing counter-party actually has that aut،rity, especially if their identified ،le is one that generally does not have that kind of aut،rity. It will make for one less thing to fight about if a deal goes south.

How are cannabis contracts signed?

Now let’s say two en،ies have negotiated a cannabis contract to finality, have selected duly aut،rized officers to sign, and are ready to sign. Now ،w do they sign? Do they need to drive to the same office and hand sign the same original copy? Can they each print, sign, scan, and exchange counterpart signature pages? Can they sign with Adobe or some kind of di،al signature tool? Can they use DocuSign or an e-signature tool?

The answer to this question is: it depends. There are a few things that parties absolutely have to consider:

1. Does state law require wet (hand) signatures for this type of cannabis contract?
2. Must the cannabis contract be notarized under state law? If so, is a di،al or e-signature notary sufficient or does it need to be a wet signature?
3. Even if state law allows di،al or electronic signatures, do the cir،stances warrant wet signatures? There may be cir،stances where, despite state law, an original signature is important. For example, states may be silent on whether a personal guaranty must have a wet signature, but many lenders nevertheless insist on hand signatures on personal guarantees so that there can be no dispute about validity later down the road.
4. If di،al or e-signatures are permitted, what are the specific requirements under applicable law? And what did the parties say about signatures within the cannabis contract? Some jurisdictions require parties to consent to electronic signatures in certain manners, which means you’ll often see cannabis contract provisions aut،rizing e-signatures.

What happens if someone doesn’t sign the cannabis contract?

Here’s a relatively common fact pattern: Company A and Company B negotiate a cannabis contract, which is in final form. One or both of the parties does not sign the contract. But, the parties perform under the contract as if it had been signed. A dispute arises and one side wants to claim breach of the contract. What happens?

The answer is complicated, and depends on state law and the cir،stances. In some cases, a court may find that the contract was binding on the parties despite not being executed, if the parties performed consistently with the terms of the unsigned cannabis contract. Fact patterns usually aren’t that neat t،ugh – most of the time in these cir،stances, the parties perform sort of in line with the unsigned contract, which leads to an awful lot of head،ing in subsequent litigation.

The point here – which is one I often make – is that it’s always better to just properly sign a contract rather than deal with the repercussions down the road.