Our hashish enterprise attorneys have drafted many hashish provide chain agreements (equivalent to distribution agreements, licensing agreements, and so on.) through the years. Typically, provide chain hashish contracts comply with the identical format and the identical nuanced provisions appear to pop up time and time once more (I wrote about a few of them beforehand within the context of tri-party provide chain agreements here). One such provision issues inspection and rejection rights.
Just about any type of settlement the place industrial merchandise are altering fingers provides the recipient the suitable to examine merchandise and reject them for sure non-conformance points. The most important negotiating level for these clauses are sometimes (1) how lengthy that inspection interval is, and (2) the grounds upon which the recipient can reject the products. Disputes can crop up throughout negotiation round whether or not or not rejection is allowed for issues which might be discretionary. For instance, a recipient might want the suitable to reject items if it determines for some purpose that it may possibly’t promote them. It goes with out saying, however the recipient virtually at all times needs extra time and broader rejection rights, the place the vendor often needs quick rejection home windows and really narrowly outlined rejection rights.
This isn’t distinctive to hashish. Any time a contract has inspection and rejection durations, these points come up. What makes them distinctive for hashish is that the California Bureau of Hashish Management (BCC) imposes extra inspection and rejection rights on its licensees. Whereas the foundations solely apply to BCC licensees, equivalent to distributors and retailers, these are the license varieties the place this often comes up (the circumstances by which cultivators, for instance, obtain hashish merchandise are very restricted).
In line with the BCC, recipients of hashish items are obligated to reject partial or complete shipments of hashish items if the cargo differs from the products on a gross sales bill or receipt, comprises items that had been broken throughout transportation, the hashish items not adjust to labeling necessities, or the products exceed their expiration date. Presumably, the BCC would additionally need recipients to reject items that in any other case fail to adjust to relevant necessities equivalent to not having handed testing. It’s principally implied from the BCC’s rule that this inspection ought to be performed upon receipt of the products.
That is all vital as a result of some sellers could attempt to negotiate for very slender rejection rights that contradict the foundations, which suggests the foundations should be thought of when negotiating a contract to keep away from disputes. What occurs, for instance, if a contract doesn’t permit items to be rejected primarily based on non-compliance with labeling necessities, and the recipient needs to reject items which have non-compliant labels? The reply shouldn’t be at all times clear and it’s good to grasp this whereas drafting.
Shifting past simply the contract, inspections are vital for sensible causes. As soon as a licensee has accepted a hashish good, its skill to return these items is severely constrained. The BCC solely permits B2B returns for faulty manufactured items and solely upon finishing sure exchanges. The BCC doesn’t outline what “faulty” means, nevertheless it arguably consists of the issues talked about above for manufactured items, equivalent to being broken or improperly labeled. Nonetheless, it doesn’t embody being unhappy with items or flower items in any case. That’s simply one of many purpose thorough inspections are vital.
Inspection and rejection clauses are sometimes glossed over in contract negotiations. Particularly for consumers, the clauses are vital. Keep tuned to the Canna Regulation Weblog as we focus on extra points with provide chain contracts within the hashish business. Till then, for extra on hashish provide chain contracts, take a look at the next: