Litigation Funding for Cannabis and Hemp Businesses

By Jennifer Cabrera, David Kramer

Nov 30, 2020

As the cannabis and hemp industries continue to grow, we see many more disputes going to litigation and arbitration. (When we refer to litigation in this post, it applies equally to arbitration.) As anyone who has been involved in a legal dispute knows, litigation can be very costly. You may have a very strong claim, but your options are limited if you don’t have the funds to pursue it. If you are a claimant, you should consider whether third-party litigation funding is for you.

Litigation funding is a multi-billion industry that has grown exponentially in the United States over the last decade. The typical funder is a private firm that will invest in a carefully-vetted litigant. In exchange for providing upfront funding for things like attorneys’ fees, arbitrators’ fees, or expert fees, the funder will typically receive a portion of proceeds recovered in the lawsuit. If the litigant loses the case, the litigant typically does not have to repay the costs and the funder’s investment is written off (while this arrangement is the norm, you’ll want to confirm this is the case in any funding proposal).

Funding is most common in commercial disputes, often involving claims of breach of contract with easily quantifiable damages. In the cannabis and hemp industries, these usually take the form of business-to-business disputes or disputes between owners.

When evaluating whether your case is right for litigation funding, you should consider:

• Are you the plaintiff? (Defendants are generally ineligible for funding unless they have sizeable counterclaims.)

• Are your claims strong on the merits?

• Does the defendant have the money to pay you the damages you’re seeking?

If your answers to these questions are “yes” (and you can’t or don’t want to commit your own resources to your claim), you may be in luck. Your lawyer can help you identify funders. The funder will work with your lawyer to independently evaluate each of these questions and decide whether it is a good fit.

Over the past few months, we’ve spoken to several funders that have expressed a willingness to lend to the cannabis and hemp industries. These lenders could prove a lifeline to small businesses struggling with slim profit margins and no access to traditional loans.

Potential benefits of litigation funding:

• Cannabis Industry: Litigation funding can provide a recourse-free loan to a business that can’t fund a claim through traditional loans due to the federal illegality of cannabis.

• Access to Justice: For those with limited resources, litigation funding empowers claims that would otherwise not be heard or taken to trial.

• Conserving Resources: If a plaintiff wants to direct its resources to other parts of its business, litigation funding frees up those resources from being spent on potentially costly and uncertain litigation.

Vicente Sederberg’s Litigation and Arbitration team has worked with litigation funders in arbitration and litigation and can help you along in this process. Please reach out to your preferred contact at Vicente Sederberg or call us at 303-860-4501 to discuss.