Takeaways from our conversation on must-know cannabis lawsuits

The lay of the legal landscape in cannabis today largely involves investor lawsuits, trademark issues, and employment practice disputes.

But legal issues arising from compliance complaints may be among the most significant lawsuits worth noting, such as the lawsuit against the maker of the popular Kushy Punch product line for allegedly manufacturing millions of dollars of “illegal” gummies.

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

Stewart also moderates the legal panel at Insurance Journal’s upcoming annual Insuring Cannabis Summit, so the podcast also touched on topics he and his panel of legal experts plan to address at the summit.

Here are the takeaways from that conversation.

Stewart spoke of a growing trend around product combinations involving manufacturing equipment failures. These failures often involve hazardous solvents, explosions or fires.

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

Unlike other product cases where equipment fails, many cannabis lawsuits involve startups.

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

In some cases, the instructions supplied with the products may not have been correctly followed during assembly or use.

“You know, all of these things can be difficult in terms of accountability,” he said.

Carriers can then reject claims, he added.

Once the equipment is on site and used to make cannabis and extract products, responsibility passes to the operator, Stewart said.

“I mean, if they are using equipment that has not been assembled correctly or does not have proper instructions or warnings so that the operator’s employees are using it incorrectly and that this results in an accident, it is really an insured licensed operator’s responsibility,” he added.

Stewart covered the number of types of cannabis lawsuits happening today. However, compliance lawsuits are among the biggest potential threats to cannabis companies.

Stewart recently represented a party involved in the California State vs. Vertical Bliss (Kushy Punch) court case. The lawsuit stems from the alleged manufacture of unlicensed gummy products under the Kushy Punch brand. The state alleges that approximately $64 million worth of products were made over the course of approximately 520 days.

“And the reason that those 520 days are important is because that’s the period of non-compliance and in the state’s motion, the way they calculated the penalties is to take those 520 days, then multiply that by what’s available for the daily penalty,” Stewart said. “And the daily fine under the relevant California law is three times the amount of license fees paid for the manufacturing license. So that’s about $128,000 per day times 520, or $128 million in penalties sought. So, you know, I think that’s an extreme example of civil reduction and the penalties that can be incurred for companies that don’t comply.

He added, “This should be a wake-up call for cannabis carriers and companies to understand that civil reduction and laws that many states have real teeth in.”

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Cannabis Lawsuits