California Cannabis Supply Chain Contracts: Fee-Shifting Provisions

California’s cannabis regime is set up to separate every point in the supply chain into different license types: cultivation, manufacturing, distribution, testing, and retail sales, to name a few. Except for a few vertically integrated companies, virtually all cannabis businesses must rely on other companies in the supply chain to get products from farm to consumer.

To that end, our California cannabis attorneys regularly draft “supply chain” agreements, which is a broad term that includes cannabis contracts such as purchase agreements, distribution agreements, manufacturing agreements, supply agreements, license agreements, and so on. We have been publishing a series of posts identifying common issues with cannabis supply chain contracts in California and will continue to do so in the coming months. If you haven’t already read earlier articles on this topic, I suggest you start with the following:

Today, I’m going to dive into a pretty dry, but very important provision in supply chain agreements. Frankly, it’s an important topic for any contract but this series is about supply chain contracts so we’re sticking with that.

For some background, the general rule in the United States is that in actions based under a contract (i.e., claims for breach of a

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