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The New Illinois Cannabis Regulation and Tax Act and a Preview of Upcoming Litigation

02/26/2020
Practice Groups

As you undoubtedly know by now, on January 1, 2020, Illinois became the 11th state to legalize the possession and use of adult-use cannabis. The new law, the Cannabis Regulation and Tax Act, 410 ILCS 705, et seq., (the “CRTA”) – all 610 pages of it – establishes the framework of one of the most regulated industries today. More than just laws about personal possession and use, the CRTA includes numerous provisions regarding the new business opportunities in Illinois, including retail operations (dispensaries), cultivation/processing facilities, infusing “kitchens,” and product transportation. Further, the CRTA will also create new ancillary opportunities for this nascent Illinois industry, such as packaging/labeling, testing, insurance, finance, and myriad other entrepreneurial exploits.

One crucial point about the CRTA must be addressed, however, even in the briefest of discussions. In drafting the law, Illinois set out to be the leader among all states in reformative justice. Illinois instituted a social equity focus in the CRTA that will, in part, allow for the expungement of nearly 800,000 minor cannabis arrests and convictions, allow greater commercial opportunity for those living in disproportionately impacted communities, and provide for low-interest loans and grants for new cannabis businesses for those with the greatest need.  Illinois’ CRTA reformative justice provisions are expected to be the gold-standard for all states going forward.

But as terrific as the CRTA may seem for reformative justice, entrepreneurs and job creation, there will be many new and significant challenges  — inevitably resulting in disputes and litigation … a lot of litigation. Here are just a few examples of where cannabis-related litigation will emanate:

  • Employment Related Issues: to what extent are employees and/or employers protections affected by the new cannabis laws?
  • Workers Compensation: are insurance companies obligated to cover workers comp claims when they relate to cannabis – a federally illegal substance?
  • Consumer Class Action: lawsuits are already being filed against cannabis companies in this highly regulated industry for misrepresentations regarding product.
  • State Licensing: with the restrictive nature of Illinois’ new licensing program (by 1/2/20, approximately 4,000 applications were submitted for 75 dispensary licenses) there will almost certainly be claims filed related to improper or unfair grading and awarding of licenses.
  • Intellectual Property: cannabis related patent filings are increasing and some courts have allowed patent infringement suits even with the federal illegality.

In addition to the challenge of having state legalization while cannabis is still federally illegal, one of the biggest litigation challenges in this emerging industry is the lack of legal precedence. Not only is there very little precedent due to no prior legal industry in which to litigate, but many disputes are being resolved through arbitration and mediation – often confidential and certainly non-precedential.

Challenges abound and a wave of litigation is coming to Illinois. There will be much to keep watch over.

Contact the Litigation Cannabis team with questions regarding this update.

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