July 14, 2020

Volume X, Number 196

July 14, 2020

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July 13, 2020

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Are Cannabis Contracts Void?

Section 1608 of the California Civil Code has been on the books since 1872.  It provides:

"If any part of a single consideration for one or more objects, or of several considerations for a single object, is unlawful, the entire contract is void."

What does this mean for contracts involving marijuana?  The Controlled Substances Act makes it illegal under federal law to manufacture, distribute, or dispense marijuana (Cannabis).  21 U.S.C. Sec. 801 et seq.  The situation is different in California because the voters have largely legalized Cannabis related businesses through the passage of Proposition 215 (The Compassionate Use Act of 1996) and Proposition 64 (the Control, Regulate, and Tax Adult Use of Marijuana Act of 2016).  In addition the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), Cal. Bus. & Prof. Code Sec. 26000 et seq. impose a comprehensive system of control and regulation of the cultivation, distribution, transportation, storage, manufacturing, processing and sale of medicinal and adult-use Cannabis.

The Civil Code does not specify whether the unlawfulness must be under California law.  At one time, the possession, use and transport of Cannabis was illegal under California law.  In Bovard v. American Horse Enterprises, Inc., 201 Cal.App.3d 832 (1988), the Court of Appeal considered the enforceability of a contract for the sale of a business engaged in the manufacture of marijuana paraphernalia:

"Moreover, it is immaterial that the business conducted by American Horse Enterprises was not expressly prohibited by law when Bovard and Ralph made their agreement since both parties knew that the corporation's products would be used primarily for purposes which were expressly illegal.  We conclude the trial court correctly declared the contract contrary to the policy of express law and therefore illegal and void."

Now that the legal status of marijuana has changed, the question will unlawfulness under federal law be sufficient to void contracts?  

© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume IX, Number 317


About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...