Cannabis Business Litigation: What’s the Point of a Demand Letter?

30 Apr Cannabis Business Litigation: What’s the Point of a Demand Letter?

It’s no secret that there’s been a huge uptick in cannabis disputes in 2020. If anything, financial pressures due to COVID-19 have made a lot of these disputes more pointed. With the rise in cannabis disputes  this year, we thought we’d do a deeper dive into something that’s taken for granted in a lot of cannabis litigation: the demand letter.

A demand letter is exactly what it sounds like: one party will send a letter making demands to another party. In most cases, demand letters are sent before a court case or arbitration is filed, and the goal of a demand letter is to prompt the other side into acting or not acting so as to avoid costly dispute resolution. Demand letter recipients usually are under no obligation to keep them confidential (unless the parties are in a contractual relationship and the contract calls for it), so chances are that if a court case or arbitration is ever filed, the demand will be part of the proceeding.

Readers may be asking themselves what the point of a demand letter is for parties who are close to litigating or arbitrating; in other words, why incur extra legal fees drafting and sending a letter when we can just file the case? There are a few important reasons, which I’ll explain below here:

1. A demand letter may avoid costly or expensive litigation. Filing a court case or arbitration basically commits parties to a lengthy dispute process. And the actual filing of a court case may involve much more time than preparing a brief letter. If the party wanting to file even suspects that the other side may be amenable to settling a dispute, a demand letter is probably a good idea.
2. A demand letter can amplify claims. Imagine a situation where the other side in a dispute was engaging in some kind of improper conduct that was harming the side that wanted to file a case. If the harmed party sends a demand letter specifically identifying the alleged misconduct and the recipient ignores the letter and continues engaging in the alleged misconduct, that may highlight that party’s bad faith and support claims.
3. A demand letter may be necessary to preserve rights. Some kinds of legal rights require that parties take efforts to protect them. For example, owners of trademark registrations have duties to protect their trademarks, and this usually means “policing” by sending cease-and-desist demand letters to alleged infringers. These letters can be used in later cases to establish that the trademark holder protected its mark.

This logic holds true in many industries, but is especially important in the cannabis industry given the prevalence of current disputes.

That said, demand letters are not a one-size-fits-all remedy. There are some cases when they don’t work. For example, if parties need immediate relief, they may not be able to wait around for someone to respond to a demand letter before pursuing an injunction or temporary restraining order. There may also be some strategic cases where it’s better to file rather than making demands. And demand letters should not be used for any kind of improper purpose.

Apart from those cases where demand letters are not appropriate, demand letters can be a highly effective tool for parties to enter into early settlement discussions, avoid costly litigation or arbitration, avoid negative publicity, and streamline the dispute resolution process.