Takeaways from Our Conversation on Must-Know Cannabis Lawsuits

The lay of the legal land in cannabis today largely involves investor suits, trademark issues, and employment practices litigation.

But legal matters arising out of compliance complaints may be among the biggest suits worth noting, such as the lawsuit against the maker of the popular Kushy Punch product line over the allegedly manufacturing of millions of dollars of “illegal” gummies.

For our latest podcast we spoke with Ian Stewart with Wilson Elser to find out lawsuits to which the insurance industry should be paying close attention

Stewart is also hosting the legal panel at Insurance Journal’s upcoming annual Insuring Cannabis Summit, so the podcast also touched on subjects he and his panel of legal experts intend to bring up during the summit.

Following are takeaways from that conversation.

Stewart talked about a growing trend around product suits involving manufacturing equipment failures. These failures often involve hazardous solvents, explosions or fires.

“So, you’re starting to see more covered claims,” he said.

Unlike other product cases in which equipment that fails, many lawsuits in in cannabis involve startups.

“They’re new. They don’t have a lot of history,” he said.

In some cases, the instructions that come with the products may not have been properly followed during assembly or use.

“You know, all of these things can be challenging in terms of who has that responsibility,” he said.

Carriers may then reject the claims, he added.

Once the equipment is on site and being used to manufacture cannabis and extracted products, the liability shifts to the operator, Stewart said.

“I mean, if they’re using equipment that wasn’t assembled properly or doesn’t have proper instructions or warnings such that the employees of the operator are using it incorrectly whatever and that results in an accident, that’s very much a liability of the insured licensed operator,” he added.

Stewart covered numbers types of cannabis-related suits happening today. However, compliance lawsuits are among the biggest potential threats to cannabis businesses.

Stewart recently represented a party involved in the State of California vs. Vertical Bliss (Kushy Punch) lawsuit. The lawsuit stems from the alleged manufacturing of unlicensed gummy products under the Kushy Punch brand. The state alleges that roughly $64 million worth of product was manufactured over the course of about 520 days.

“And the reason that that 520 days is important is because that’s the period of noncompliance and in the state’s motion, the way that they calculated the penalties is to take that 520 days and then multiply it by what’s available for the daily penalty,” Stewart said. “And the daily penalty under the relevant California statute is triple the amount of the license fee that’s paid for the manufacturing license. So that amounts to about $128,000 a day multiplied by 520, or $128 million in penalties sought. So, you know, I think that this is an extreme example of civil abatement and the penalties that can be incurred for companies that go out of compliance.”

He added: “It should be a wakeup call for carriers and for cannabis companies to understand that civil abatement and the statutes that many states have real teeth.”

Related:

• Takeaways from Our Conversation on Cannabis Risk Management
• Takeaways from Our Conversation on Cannatourism
• Takeaways from Our Conversation with a Cannabis Investing Pro
• Takeaways from Our Conversation on Economic Headwinds, Cannabis Glut
• Takeaways from Our Conversation About Why Most Small-to Mid-Size Cannabis Operators Shun D&O

Topics Lawsuits Cannabis