Washington has just passed new legislation that makes possession of small amounts of marijuana legal within the state. The legislation also authorizes the state to develop a system to license businesses to grow and sell marijuana. Many of the new marijuana businesses may be mom and pop operations. But the market potential is huge, estimates vary up to $6 billion per year in Washington alone. That is attracting venture capital and high tech entrepreneurs who intend to apply high tech startup business methods to marijuana sales. See Investors see profit potential in new pot law and Former Microsoft Exec plans high-end marijuana business.
Most of the legal issues for marijuana businesses will not be new. Regulations for marijuana sales will probably be similar to regulation of alcohol sales. Most marijuana business start up legal issues will be similar to the already existing high tech startup legal issues. There will be issues of management, ownership, control and funding. Intellectual property protection will be important, especially branding, which is a form of trademark law.
But there will be new challenges as well. For example, marijuana possession and sale remain illegal under federal law. Contracts to perform illegal acts are generally not enforceable. Would an agreement to run a marijuana business be unenforceable because it is against federal law, even though it is legal under state law? It may turn out that such an agreement is enforceable in Washington state courts, which apply state law, but not in federal courts, which may be included to apply federal law. To be safe, it is probably best to include a clause in any marijuana business contract that states that the contract is governed by Washington state law and that any lawsuit brought to enforce the contract must be brought in a Washington state court. I am sure that other unusual legal issues will arise as well. I will try to write about them as they arise.
Please join the discussion. What do you think? Given the risks involved, would you invest in a marijuana startup? Would you work for one in return for equity? Does it make sense to apply the high tech startup business model to marijuana sales?
Update January 28, 2013: See also Pot entrepreneurs seek funding from investors.