Medical Marijuana Complicates Business Deal

SAN FRANCISCO (CN) — Nothing is simple in the medical marijuana business, even "a simple breach of contract claim" in which a federal magistrate refused to grant summary judgment this week to a woman who wants to back out of buying two companies because they are illegal under federal law.

Sara Gullickson agreed to buy DispensaryPermits.com and weGrow Enterprises from Dharminder Mann in 2014 for $400,000.

Gullickson and Mann signed off on the deal in California, where medical marijuana is legal, but Gullickson sought to invalidate it under the federal Controlled Substances Act, which prohibits medical marijuana.

She said the contracts are for "marijuana businesses" and enforcing them would force her to break the law because she has no way to pay for the companies but to run them.

Mann countered that the companies do not grow or sell marijuana, but provide consulting services and information, and only in states where medical marijuana is legal.

U.S. Magistrate Judge Maria-Elena James on Wednesday denied Gullickson's motion for summary judgment, finding that requiring Gullickson to pay Mann wouldn't require her to break the law.

"Even if these businesses are Gullickson's only livelihood, she has not shown the only way to operate them is in a way that violates the CSA," James wrote. "In other words, if the court ordered payment, and Gullickson's only way to pay was by making these businesses operational, that situation would not necessarily require Gullickson to be involved in the medical marijuana industry."

James also found that enforcing the contract would not constitute endorsement of the medical marijuana industry.

"It is not making broad pronouncements ... that any and all contracts related to marijuana or medical marijuana will be enforceable," James wrote. "Rather, considering the particular facts and circumstances of this case, the court finds no reason why the parties' agreement would not be enforceable."

Mann's attorney, Harvey Stein, said Mann was pleased with the judge's ruling.

"He's delighted that this now allows him to go forward and press his case because if the court had granted the summary judgment motion, Ms. Gullickson would have continued to operate the business she bought from him and would have gotten out of a $225,000 unpaid obligation."

"It means a lot to Mr. Mann," Stein continued. "That was his sole livelihood when he sold this business and he was depending on Ms. Gullickson performing."

Gullickson agreed to pay for the companies in three installments and Mann says she still owes him $225,000. He sued her for breach of contract in June 2015.

Gullickson countersued two months later for breach of contract and intentional interference with prospective economic relations, among other claims, saying that Mann had the companies' websites taken down, resulting in "substantial missed business opportunities."

James ruled Wednesday that failing to pay Mann what Gullickson owes him for the companies, while making money from them could result in her unjust enrichment.

James noted that Gullickson spent more than $50,000 rebuilding the companies' websites, corroborating Mann's assertion that Gullickson still runs the businesses.

"The court cannot ignore the potential likelihood of a windfall for Gullickson if she is able to dodge the contract at this point," the judge wrote. She ordered them to meet and confer and file a joint case management statement by Nov. 10.

Gullickson is represented by Jesse Callahan with Loose, Brown Hobkirk & Callahan in Phoenix. Gullickson could not be reached for comment Thursday.

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