The commercial litigation landscape for CBD, hemp and marijuana is constantly evolving as federal and state courts issue decisions that impact investors, commercial contracts, employment issues, intellectual property and insolvency. The CannaBizDisputes™ blog regularly tracks and reports on these developments.
Illinois Appellate Court contemplates a court-run cannabis dispensary
A recent decision from the Illinois Appellate Court expressly held that a plaintiff was likely to success on the merits of his claim to have a judicially appointed receiver run a state sanction cannabis dispensary. In Dreger v. Dolan, 2019 WL 1897116 (Ill. App Ct. 2019) the plaintiff, a holder of a minority interest in a medical cannabis dispensary sued the majority owner in Illinois state court, alleging various misconduct including the failure to make distributions that were needed to stay current on the taxes and licenses that required for maintaining the necessary status as the principle of a dispensary. The plaintiff asserted claims for breach of fiduciary and breach of contract, and also a claim for the appointment of a receiver to run the dispensary. In addition, the plaintiff moved for a mandatory preliminary injunction ordering the defendant to make the distributions on behalf of the dispensary. He argued that his interest in the dispensary would be harmed if it was unable to stay current on its taxes and licenses, and that the distributions were needed to do that. After the trial court denied the TRO and dismissed most of the underlying claims, the plaintiff appealed.
The Appellate Court of Illinois reversed the denial of the TRO, and directed the trial court to order the defendant to make a distribution of $100,000. The court found that the threat to Plaintiff's ownership interest in the dispensary was sufficient to meet the irreparable harm requirement, and that he was likely to succeed on the merits of his claim for the appointment of a receiver. It also found that no remedy existed at law because the “unique nature of licensing in [the cannabis] industry” meant that “a money judgment granted to [the plaintiff] at some distant future date could not protect [his] right to maintain his current status as principal officer and owner of a medical cannabis dispensary in Illinois.”
This decision could been seen just another example of the judiciary's increasing willingness to enforce (otherwise valid) agreements made in furtherance of state sanctioned cannabis operations. But the court seems to go much further. By ordering the defendant to make distributions on behalf of the dispensary, and for its benefit, the court is unmistakably using its power to coerce to ensure the continued operation of a federally illegal cannabis operation. Even more astonishing is the court’s finding that the plaintiff was likely to succeed on his claim to have a court-appointed receiver run the cannabis dispensary—apparently contemplating the first judicially-run dispensary—without any discussion of the Controlled Substances Act. Conflict preemption, at least in the area of cannabis regulation, seems to be all but dead.
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