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$500K Loan to Medical Pot Company Not Enforceable: Judge

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By Stephanie Rabiner, Esq. on May 14, 2012 9:30 AM

Don't lend money to a medical marijuana company. Don't even contract with a medical marijuana company. If a recent Arizona case is any indication, it's a pretty bad idea.

A state judge has dismissed a lawsuit brought by two individuals who lent a Colorado medical marijuana company $500,000. Michele Hammer and Mark Haile sued the company, Today's Health II, after it failed to repay the loan and interest fees.

Unfortunately, the judge has refused to enforce the underlying contract.

You see, contracts that have an illegal purpose or that violate public policy are generally not enforceable. The lenders' medical marijuana contract was technically an agreement to finance the sale and distribution of marijuana in Colorado.

Though medical marijuana is legal in both Arizona and Colorado, it is still prohibited by federal law. Judge Michael McVey also noted that it is unlawful to aid and abet the commission of federal crime. Giving Today's Health II money to build their medical marijuana businesses was technically aiding and abetting.

Judge McVey also ruled that Michele Hammer and Mark Haile could not recover on the theory of unjust enrichment. This is an equitable remedy that allows plaintiffs to recover their property when the other party unjustly benefits from its use. It is not available to plaintiffs when the agreement at issue violates public policy.

If this ruling stands, and if other courts in other states agree with it, anyone who enters into a contract with a medical marijuana business is at risk. It could be applied to sales contracts, leases and even customer purchases. This would be bad for all the medical marijuana users out there.

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