Marijuana Dispensary Loan for $500,000 Doesn't Need to be Paid Back, Judge Rules, Because Pot is Illegal Under Federal Law
|Image: Jamie Peachey|
The bombshell ruling, (tip of the hat to lawyer Richard Keyt's medical-marijuana blog), has major implications for the budding dispensary industry in Arizona. Applications for dispensaries are set to be accepted this month, and state-authorized, medical-pot retail and grow centers are expected to open by late summer.
Although this isn't a precedent-setting ruling that other judges must consider, the basic concept of the April 17 ruling is a wake-up call for lenders and investors.
As Keyt wrote in his blog, if this goes to an appeals court and is upheld, "any contract that has a purpose related to Arizona medical marijuana may be unenforceable and not worth the paper it is written on!"
In reading the ruling by Maricopa County Superior Court Judge Michael McVey, it's easy to see how Keyt came to that conclusion.
The case involves two simultaneous $250,000 loans by Valley residents Michele Hammer and Mark Haile to Today's Health Care II, a Colorado corporation. The company is affiliated with Today's Health Care, a dispensary in Colorado Springs.
Hammer and Haile lent the money in August 2010 for the stated purpose of financing a "retail medical marijuana sales and growth center," according to loan documents signed by each side. Today's Health Care agreed to make an interest payment every month.
By March 12, 2011, the dispensary failed to make a timely payment. It defaulted on the loan agreement a week later.
Judge McVey wrote that the only relevant legal issue was whether or not the loan documents are enforceable.
He says they're not, because the U.S. Controlled Substances Act makes all aspects of pot sales and cultivation illegal.
An agreement is unenforceable if the acts to be performed would be illegal or would violate public policy... The explicitly stated purpose of these loan agreements was to finance the sale and distribution of marijuana. This was in clear violation of the laws of the United States. As such, this contract is void and unenforceable. This Court recognizes the harsh result of this ruling.
Harsh is right. Half a million bucks -- up in smoke.
Randy Nussbaum, managing partner at the Valley law firm that represented Haile and Hammer, says his clients are "not by any means wealthy," that he doesn't think they had any previous experience in the marijuana industry, and that they believed lending money to an existing Colorado business would be legal.