Three Important “Drafting Tips” When Negotiating Cross Border Cannabis Transactions

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As the world continues to shrink, cross border transactions continue to become more common, even in the cannabis field where more countries are legalizing both medicinal and recreational use of cannabis. Today, there are at least thirty countries that allow the cultivation, manufacturing and use of medicinal cannabis (Argentina, Australia, Chile, Czech Republic, Denmark, Germany, Israel, Thailand, etc.). A handful of countries permit recreational use; and Canada has recently joined suit. So, not surprisingly, over the past several months, we have seen a tremendous number of cross border deals by Canadian companies such as, just this month:

(1) Tilray’s acquisition of a Chilean distributor announced October 9; (2) the Green Organic Dutchman’s acquisition of HempPoland which closed on October 2; and (3) Flower One Holdings’ agreement to purchase the Nevada cultivator NLV Organics announced on October 11. And earlier this month, Canopy Growth announced the first successful import of cannabis into the United States for FDA regulated clinical testing. 

Over the years our attorneys have advised many clients in cross border deals. Most recently, we assisted a Macedonian operator (Seller) with a sale of cannabis into Canada. While the legalities of international transactions can be extremely complicated and beyond the scope of this writing. The experience reminded us of three important “drafting tips” when negotiating cross border transactions.

#1 Take International Treaties Into Account

First, don’t forget about international treaties. For example, a deal between a U.S. cannabis company and a Canadian cannabis company is not just governed by federal and local laws. Both countries are signatories to the U.N. Convention on Contracts for the International Sale of Goods, which can, if you’re not careful, re-write and/or at least “augment in potentially unexpected ways” certain provisions within even signed contracts concerning the international sale of cannabis.

#2 Be Clear About Commercial Transaction Details

Second, be extra clear when title and risk of loss should pass from the seller to the buyer. In any commercial transaction this is important because it drives considerations such as (1) who pays for the shipper and who is responsible for insuring the goods against loss during shipment. But in the cannabis space, these considerations are especially important because the laws regulating the export and import of cannabis create an uncommonly high risk of potential criminal liability. For these reasons, as the Seller’s counsel, we favored an express reference to International Rules for the Interpretation of Trade Terms of the International Chamber of Commerce (Incoterms 2000), with the goods to be delivered on an Ex Works basis so that the Buyer would have sole responsibility for exporting out of Macedonia, shipping overseas and importing into Canada.

#3 Pay Attention to Potential Dispute Resolution

Third, give careful consideration to dispute resolution. How reliable are the local courts? How far should any party to the contract need to travel in order to seek a remedy for a breach? What language should both the parties and the tribunal resolving the dispute use for the adjudication? In the above instance, we chose international arbitration conducted in English in London, as a halfway point between the parties. For reference, here is the language we proposed:

In the event of any dispute, claim, question, or disagreement arising out of, or relating to, this Agreement, or the obligations of either party hereunder (any such disagreement, a “Dispute”), the parties will use all reasonable efforts to settle the Dispute expeditiously.  If the parties are unable to settle a Dispute within thirty (30) days after the date of the notice of dispute, the Dispute will be referred to, and exclusively and finally resolved by, binding arbitration before a panel of three arbitrators in accordance with the international Rules of Conciliation and Arbitration of the International Chamber of Commerce (the “ICC”), which rules are incorporated herein by reference, except that each party will be limited to five (5) depositions and twenty (20) requests for production of documents.  The language to be used in the arbitral proceeding will be English and all arbitral proceedings will be conducted in London, England.  Each party will bear its own costs associated with the resolution or arbitration of any Dispute, and all fees and other costs of the arbitration proceeding will be shared equally between the parties.  Any arbitration hereunder shall be conducted in accordance with any expedited procedures set forth in the ICC rules existing on the Effective Date.  Nothing in this arbitration clause will prevent either party from seeking a pre-award attachment of assets or equitable relief to enforce intellectual property rights or confidentiality obligations in a court of competent jurisdiction.

 If you would like assistance with cross border transactions for your cannabis business, please contact Rogoway Law Group to schedule a consultation today.

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