California Cannabis Litigation: Threats of License Loss and Injunctions

26 Mar California Cannabis Litigation: Threats of License Loss and Injunctions

An injunction is a request to the court for immediate relief from harm or potential harm. Its purpose is to stop harmful activity, prevent future misconduct or maintain the status quo during the pending litigation. While courts are often hesitant to grant such relief, recent trends suggest a shift in attitude, especially within the cannabis sector.

As any of our litigators will tell you, securing an injunction in California is no easy feat. But California courts may be willing to grant them if cannabis licenses are at stake, in addition to other circumstances such as actual or threatened intellectual property infringement.

What are the legal standards for injunctions?

To receive an injunction, a plaintiff must convince the court, among other things, of the likelihood of success on the merits of its claims and that it will suffer irreparable harm without the relief. As to the first part, the plaintiff must show it will likely succeed on at least one cause of action in its complaint. This does not mean a certainty of success, simply that the facts and the law demonstrate a good possibility of prevailing. While this may seem daunting, a well-pled complaint usually meets this threshold requirement.

The toughest hurdle is demonstrating irreparable harm to the court. If the harm is not imminent, or if the injured party can be made whole via a monetary award, an injunction will be denied. For example, if there is simply a threat of lost money, as opposed to some kind of intangible or non-monetary harm, the injunction will probably be denied.

But, if the loss of a cannabis license is at stake, California courts have shown a willingness to issue narrowly drawn injunctions – probably because they have started to realize that a cannabis license is unlike other business licenses.

What’s so special about cannabis licenses?

In the California cannabis space, there are only a finite number of licenses (while that’s not exactly the case at the state level presently, it is true at the local level where licenses are often explicitly capped or at least capped via restrictive zoning and undue concentration requirements).

Cannabis licenses involve a strict, and often very lengthy application process. Windows of opportunity are by definition narrow. In some locales, business owners may have to forgo other opportunities to apply for a specific license. And in many cases, if a license is lost – for any reason – reapplication may be difficult or even impossible.

Based on factors like these, California courts may be more inclined to believe that the threat of loss of cannabis licenses presents a unique, non-monetary, and irreparable harm.

Balancing hardships and public interest

A final hurdle to secure an injunction involves demonstrating a balance of hardships in favor of the plaintiff, and considering the public interest. In business disputes, courts weigh the possibility of a license loss and the ease of granting relief against the hardship of the party opposing the injunction. For example, imagine a partnership dispute where one party threatens to take some action that would result in loss of licensure. The other party may want an injunction prohibiting that action. The original party may oppose the injunction on various grounds, and the court would then balance those potential hardships. If a license is at play, that will likely factor into the court’s ultimate decision.

Where appropriate, the courts also consider the public’s interest in the relief requested. This might not always be a hotly contested factor in a B2B or partnership dispute, but it’s certainly possible.

The tide is turning for Cannabis injunctions

Obtaining an injunction to protect a cannabis license in California can be challenging, but recent developments suggest the tide is turning in favor of such relief. With courts increasingly recognizing the significance of cannabis licenses and the irreparable harm caused by their loss, seeking an injunction in the right circumstances can be a prudent investment.