Commercial Contracts
Recognized Commercial Contract Expertise
Well‑drafted commercial agreements are critical in an industry where many relationships began as handshake deals and where federal illegality, licensing constraints, and rapid market shifts create unique allocation‑of‑risk issues. The firm drafts, reviews, and negotiates the full range of contracts that underpin cannabis and hemp businesses, including purchase and sale agreements, management and services agreements, distribution and supply contracts, IP and white‑label licenses, secured financing documents, and landlord‑tenant arrangements.
The practice has substantial experience in transactions complicated by inexperienced intermediaries or cross‑border participants unfamiliar with California’s cannabis rules. Several recent acquisitions of manufacturing and distribution companies required re‑educating brokers or counterparties who had put deals on unstable footing, then re‑engineering the documentation so that the agreements, collateral, and closing steps aligned with state and local regulatory expectations.
Commercial contract work also encompasses unwind and restructuring scenarios, where investment agreements, leases, and management contracts must be renegotiated or terminated against a backdrop of criminal activity at premises, severe price compression, or threatened enforcement. In each case, the focus is on preserving value, minimizing disputes, and maintaining a path to regulatory compliance and future transactions.
The Law Office of Shay Aaron Gilmore has been recognized as a Super Lawyer in Business Law, and as one of the Top 100 Northern California Lawyers across all practice areas, by Super Lawyers® Magazine, in part as a result of the superior results Shay has achieved on behalf of cannabis and hemp clients in their commercial contract transactional matters.
What Are the Risks of Not Having the Proper Commercial Contracts in Place?
From Shay’s interview for the Master’s series on ReelLawyers.com
The risks to your cannabis or hemp business of not having legally enforceable commercial contracts in place are numerous. They include compliance and regulatory risks, loss of competitive advantage, and the potential for litigation and legal disputes.
There are several strategies you can use to mitigate these risks, such as developing comprehensive contracts and including key clauses that ensure the compliant operation of your commercial cannabis or hemp business.
When commercial relationships are going well, written contracts may seem unimportant, but when things take a turn for the worse, a written contract not only sets expectations for each party, but also protects the parties with representations and warranties, indemnification clauses, and risk-shifting provisions to provide clarity, and enable businesses to conduct operations seamlessly. Shay has experience drafting the full range of agreements that a hemp or cannabis business may need, including but not limited to:
- Commercial contracts across the cannabis supply chain
- Confidentiality agreements
- Processing equipment sales agreements and leases
- Management agreements
- Flower supply agreements
- Distribution agreements
Related cannabis and hemp business services: Corporate Law, Regulatory Compliance, Real Estate & Land Use, Venture Capital Counsel, Intellectual Property Law, Administrative Law, Employment & Labor Law.
Contract Enforceability, Choice of Law, and Forum Selection: The Cannabis–Hemp Divide
The threshold question for every cannabis contract is one that hemp contracts rarely face: will a court enforce it? Because cannabis remains a Schedule I substance under the Controlled Substances Act, federal courts have dismissed breach-of-contract claims where enforcement would require the court to validate what federal law treats as an ongoing crime — and defendants in cannabis contract disputes have increasingly raised the federal illegality defense to walk away from deals they no longer want. California addressed this head-on with Civil Code section 1550.5, which provides that commercial cannabis activity conducted in compliance with California law is deemed to have a “lawful object” for purposes of contract formation and enforcement, making cannabis contracts enforceable in California state courts. But section 1550.5 does not bind federal courts, and recent federal decisions in Ohio and Michigan have invalidated cannabis purchase agreements and sales contracts on CSA grounds even where the underlying activity was fully state-legal. This creates a drafting imperative: every cannabis commercial contract should include a California choice-of-law clause, a mandatory state-court forum-selection clause, an express acknowledgment of federal illegality, and a mutual waiver of the illegality defense, so that neither party can exploit the federal–state conflict to escape its obligations.
Industrial hemp contracts are not subject to the same enforceability uncertainty. The 2018 Farm Bill removed compliant hemp from the CSA, and hemp-related commercial agreements are enforceable in both state and federal courts — meaning hemp operators have access to federal diversity jurisdiction, federal arbitration enforcement, and the full range of forum options that cannabis companies do not. However, the legal landscape for hemp contracts is shifting rapidly: California’s AB 8 is redefining what qualifies as “industrial hemp” under state law, tightening THC testing standards, and requiring that hemp-derived cannabinoid products entering the licensed cannabis market meet DCC regulatory requirements — meaning that contracts written under the old definition of hemp may need to be restructured as the two markets converge. The firm drafts and negotiates cannabis and hemp commercial agreements with choice-of-law, forum-selection, and enforceability provisions specifically calibrated to each product’s federal legal status, and advises clients on restructuring existing contracts when regulatory definitions shift.
The firm provides Commercial Contract services to cannabis and hemp operators and investors in:
Focused on Cannabis and Hemp Agreements
Whether you are taking a fresh look at the level of protection your current business documentation provides, or just getting started as a commercial cannabis or hemp operator, The Law Office of Shay Aaron Gilmore is ready with legal solutions for your cannabis or hemp business needs. From review and negotiation of contracts handed to you, to preparing bespoke contracts from scratch, Shay helps clients anticipate and overcome pitfalls in commercial cannabis and hemp business transactions, strengthening relationships among cannabis and hemp industry operators. The Law Office of Shay Aaron Gilmore routinely prepares commercial agreements for cannabis and hemp industry clients, including:
- Transport-only agreements
- Purchase agreements
- Manufacturing agreements
- License agreements
- Joint venture agreements
- Consulting and professional services contracts
Shay understands the commercial contract arrangements across the cannabis and hemp supply chains, and knows how the Uniform Commercial Code (UCC) and other contractual rules apply to these agreements. Cannabis and hemp clients rely on The Law Office of Shay Aaron Gilmore to maximize their advantage and make deals more profitable because Shay knows these deals inside and out. Shay’s commercial contract work for cannabis and hemp companies includes skilled preparation and negotiation of:
- Agency agreements
- Alliance and collaboration agreements
- Consulting arrangements
- Customer service agreements
- Sales representation contracts
- Supply contracts
- Warranties
What Types of Commercial Contracts Do Cannabis Businesses Need?
From Shay’s interview for the Master’s series on ReelLawyers.com
As a commercial cannabis business, you will absolutely need a variety of commercial contracts. These include operating agreements if you’re organized as a limited liability company, as well as vendor and supplier agreements, distribution agreements, retail and dispensary contracts, and non-disclosure agreements.
Each of these contracts will help you, as an operator, establish successful and professional relationships with your business partners.
Representative matters
- Drafted and negotiated purchase agreements and ancillary documents in multiple acquisitions of licensed manufacturing and distribution companies across California, including deals where foreign‑based brokers had structured transactions in ways that conflicted with state cannabis laws.
- Led negotiation of complex leasing, finance, and management contracts for landlords and creditors financing cannabis manufacturers and cultivators, ensuring contracts were enforceable and synchronized with regulatory filings and approvals.
- Negotiated nationwide distribution agreements for proprietary vaporizer hardware, including royalty, minimum‑purchase, and profit‑sharing provisions, and product‑liability and regulatory‑compliance allocations.
- Structured and implemented unwind agreements and related documentation in connection with investments in licensed manufacturers that experienced repeated criminal incidents, balancing investor protection with continuity of operations for the businesses.
Supply Chain Agreements, Testing Obligations, and Regulatory-Change Risk
The operational backbone of both the cannabis and hemp industries is the supply chain — cultivation to processing to testing to distribution to retail — and at each handoff, the commercial contract must reflect the specific regulatory requirements that govern that transaction. For cannabis operators, distribution agreements carry particularly heavy regulatory weight: under DCC regulations, only a licensed distributor can arrange third-party compliance testing, review packaging and labeling for regulatory compliance, and transport finished goods to retail. The distributor must have physical possession of the entire batch before sampling, the testing laboratory must issue a Certificate of Analysis under 4 CCR section 15726, and the COA must be uploaded to Metrc within one business day of completion. A supply or distribution contract that fails to allocate responsibility for batch failures, retesting costs, product holds, and recalls in light of these requirements will leave both sides exposed when — not if — a batch fails and the supply chain stalls. Cannabis contracts also need to address the DCC’s disciplinary framework: the agency can impose fines of $100 to $5,000 per violation for licensed operators who transfer products without using a licensed distributor, fail to maintain Metrc compliance, or release a batch for retail sale without a passing COA.
Hemp supply chain contracts operate under a different testing and compliance regime. Pre-harvest THC sampling for hemp is coordinated through county agricultural commissioners under CDFA rules, not through DCC-licensed testing laboratories, and the consequences of a failed test are existential: a crop that exceeds the acceptable THC concentration must be destroyed, and the costs of destruction, lost revenue, and downstream contractual obligations fall on whichever party the contract assigns that risk to — or on the grower by default if the contract is silent. Hemp contracts must also address interstate transportation documentation — Certificates of Analysis, bills of lading, and compliance with the receiving state’s hemp program — because, unlike cannabis, lawful hemp can move across state lines, and the 2018 Farm Bill preempts states from prohibiting the interstate transportation of compliant hemp. But the practical reality is that state laws on hemp-derived cannabinoids vary dramatically, and a product that is legal to ship from California may be non-compliant on arrival in another state. The firm structures cannabis and hemp supply chain agreements with detailed testing-failure remedies, batch-rejection and recall protocols, regulatory-change triggers, transportation and documentation obligations, and indemnity provisions that reflect the distinct compliance frameworks governing each product — so that a regulatory disruption at any point in the supply chain is addressed by the contract rather than left to litigation.