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Are CBD Contracts Valid Under State or Federal Law?

Many companies have signed contracts related to the purchase of industrial cannabis or CBD extracts. But can these contracts be effectively enforced under state and federal laws? As the entire cannabis-related industry is affected by COVID-19, this and other similar issues are becoming the focus of litigation.

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The basic principle of the entire enterprise is that the court can order two or more parties with the legal responsibility to enforce their contract. However, there has recently been an exception to this principle, which is that agreements that violate state or federal laws may be considered invalid or invalid by the court. Recently, a state court case and a federal bankruptcy case have highlighted how the court enforces the law and the conflict between these two legal principles.

Law Dispute

  • Miner’s Delight vs United Cannabis Corporation

In April of this year, Miner’s Delight, LLC sued United Cannabis Corporation (UCC) and its subsidiary Chapter 11 for bankruptcy status and filed a 47-page motion to dismiss the bankruptcy lawsuit. Miner’s Delight firmly asserts that UCC engages in illegal activities that violate the Federal Food, Drug, and Cosmetic Act (FDCA), including advertising of its products as dietary supplements for medicines. Miner’s Delight has also accused that UCC’s CBD isolation products violated the 1994 Dietary Supplement Health and Education Act and FDCA exclusion clauses. The exclusionary rule prohibits using a substance in food, provided that the content is approved for research in drug trials for the first time. UCC’s response to the motion to dismiss will take effect on June 4.

  • Metsch vs Heinowitz

The San Diego California Court of Appeals ruled in the Metsch v. Heinowitz case on April 22, 2020. The ruling dealt with legal issues concerning the ownership rights and interests of the Golden State unlicensed cannabis food producer. A couple claimed to own two-thirds of an edible cannabis company and sued the company’s third legal person and a consultant.
The appellate court affirmed that decision by declaring that “a party to an illegal contract cannot come into a court of law and ask to have his illegal objects carried out.”

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“Since the doctrine of illegality of contracts is grounded in public policy, the focus is on whether the object of the contract is illegal, not on the extent of either party’s participation in the illegality. In applying the illegality of contract doctrine as a defense, courts do not consider whether its application results in unjust enrichment “secur [ing] justice” between the contracting parties, courts must consider “a higher interest — that of the public, whose welfare demands that certain transactions be discouraged.” Very simply,’ a party to an illegal contract cannot come into a court of law and ask to have his illegal objects carried out.”

This article is issued by Project CBD.

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Alina Xue
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