The "Act of God" Contract Clause That's Costing Cannabis Companies Millions

You've just signed a massive supply agreement. Then suddenly, the state changes its testing rules. Your perfectly good product now fails compliance. You can't deliver.

Is your company on the hook for tens of thousands in damages? Or does that forgotten paragraph on page 27 of your contract—the "force majeure" clause—save you?

For many cannabis companies, the answer has been an expensive lesson in contract language. Let's break down what you need to know.

What's Force Majeure and Why Should You Care?

Force majeure is legal language for "stuff happened that nobody could control." It's the contract section that covers hurricanes, wars, or pandemics—events so unexpected that it's unfair to hold someone to their original agreement.

In most industries, this is standard boilerplate language that nobody reads. In cannabis? It could be the paragraph that saves or costs you a lot of money.

The $43 Million Mistake

Just ask the California supplier who tried to back out of a $43 million sale agreement when state testing regulations suddenly changed. The contract had a typical force majeure clause mentioning "acts of God, war, riot, epidemic, and labor disputes."

Notice what's missing? Any mention of regulatory changes—the most obvious risk in the cannabis industry.

The court ruled against them. The manufacturer had to pay up because regulatory changes are completely foreseeable in cannabis. The standard language didn't protect them.

The manufacturer assumed standard language would cover cannabis regulations, and it simply didn't.

Cannabis Isn't Normal (Your Contracts Shouldn't Be Either)

Here's the reality: Cannabis businesses face disruptions that simply don't exist in other industries:

🔸 Overnight regulatory changes that can make inventory worthless

🔸 License suspensions (yours or your partner's) that halt operations instantly

🔸 Banking relationship terminations that freeze money without warning

🔸 Track-and-trace system failures that legally prevent product movement

🔸 Testing lab backlogs that create unavoidable delays

Standard force majeure clauses rarely address these cannabis-specific problems.

Real-World Cannabis Disasters (That Standard Contracts Don't Cover)

The Tracking System Nightmare

Imagine METRC crashing for a few days. No product can be transported legally. Buyers threaten breach of contract claims because their contracts didn’t specifically address tracking system failures.

The Testing Threshold Shocker

When California lowered permissible levels of heavy metals, products that passed testing one day failed the next. Most contracts didn't specifically address testing changes.

The Banking Blackout

One cannabis store’s bank dropped all marijuana clients with no notice and froze funds. The store had no way to pay suppliers for weeks. Suppliers still demanded full payment because banking issues weren't covered in their contracts’ force majeure clause.

Making Your Force Majeure Clause Actually Work

Step 1: Name the Cannabis-Specific Disasters

Your force majeure clause should explicitly list cannabis-specific events:

✅ State and local regulatory changes

✅ Federal enforcement policy shifts

 ✅ Testing requirement modifications

✅ Banking or payment processing disruptions

✅ Seed-to-sale tracking system failures

 ✅ License suspensions (affecting either party)

Step 2: Don't Just Cancel—Create Solutions

Instead of simply voiding the contract, define what actually happens when disaster strikes:

✅ Temporary price adjustment formulas

✅ Delivery timeline extensions

✅ Alternative performance options

✅ Clear notification requirements

✅ Collaborative compliance adaptation process

As one clever manufacturer put it: "Our contracts don't just say 'deal's off' if regulations change. They include specific steps for working together to meet new requirements, with shared costs and adjusted timelines."

Step 3: Address Partial Problems

Sometimes performance isn't impossible—just much harder or more expensive. Your contract should cover these scenarios too:

✅ Clear thresholds for what constitutes significant hardship

✅ Graduated response frameworks based on disruption severity

✅ Good faith compliance effort requirements

The Federal Question: The Elephant in Every Cannabis Contract

Here's a tricky question: Since cannabis is federally illegal, should any federal enforcement be considered "unforeseeable"?

Three smart approaches have emerged:

Approach 1: Explicitly exclude federal issues "We acknowledge federal illegality is a known risk and NOT a force majeure event."

Approach 2: Include specific federal changes "Changes in federal enforcement priorities that materially differ from policies at contract signing ARE force majeure events."

Approach 3: The balanced approach "General federal prohibition isn't a force majeure event, BUT specific enforcement actions directly targeting our operations ARE."

Most sophisticated cannabis contracts now use Approach 3, recognizing that federal prohibition itself is a known risk, but specific enforcement actions might qualify for relief.

What Should Your Business Do Today?

1. Check your existing contracts now Pull them out and see if your force majeure clauses specifically address cannabis regulatory changes. If not, you're exposed.

2. Create cannabis-specific template language Develop force majeure language that addresses your specific business risks and get it into all new contracts.

3. Establish a force majeure response plan Create a clear internal process for when potential force majeure events occur, including who documents what and how communications should happen.

4. Consider backup suppliers and customers Diversification is your practical insurance against force majeure events affecting a critical business partner.

The Bottom Line

In most industries, force majeure is boring legal boilerplate. In cannabis, it's essential protection against industry-specific disasters that happen regularly.