Hemp farmers often look for strategic partnerships with other farmers and landowners to boost their production capabilities.
But those relationships can go awry if care isn’t taken in picking the right partners and creating solid contracts.
A recent example includes four Oregon farms that are immersed in litigation over production agreements after the 2018 season.
Big Bush Farms of Marion County, Oregon, is suing three local farms it hired to grow crops under its state hemp production license, claiming they didn’t deliver the agreed-to biomass.
According to documents filed in Oregon’s Marion County circuit court this spring, here’s how the lawsuits break down:
- Boones Ferry Berry Farm of Hubbard, Oregon, failed to deliver more than 100,000 pounds of dried biomass from 27,000 plants in exchange for $25 per pound plus $1 per pound in addition to a bonus of $1 per pound for every 2% of CBD content over 10%. Big Bush is seeking $267 million for the breach.
- Harlam Family Farm II of Brooks, Oregon, failed to deliver 43,500 pounds of hemp biomass from a 10-acre hemp crop in exchange for $25 per pound for dried biomass with a bonus for higher CBD content yield above 10%. Big Bush is seeking more than $16 million.
- Scenic Valley Farms of Gervais, Oregon, failed to deliver 79,428 pounds of hemp biomass from 19,000 plants under a sharecropping agreement in which Big Bush Farms would pay all crop production costs, recoup its expenses, then split the remaining balance with Scenic Valley Farms for crops sold at $25 per pound. Big Bush is seeking more than $112 million.
The agreements stipulated that the farms were required to use “best farm practices, knowledge and experience” to produce and deliver high-quality product with a minimum of 10% on average CBD oil content.
In the Scenic Valley Farms case, the lawsuit alleges the defendant “failed to use best farm practices by, among other things, refusing to hand pick the crop,” which resulted in not meeting the required 10% CBD requirement.
The defendants in each case allegedly sold the hemp crop they produced to other buyers, despite their agreements with Big Bush Farms.
Boones Ferry Berry Farm was identified as the producer that sold hemp to Big Sky Scientific, the Colorado CBD company that saw nearly 7,000 pounds of its industrial hemp seized in Idaho in January.
The companies did not immediately respond to inquiries from Hemp Industry Daily.
Production lawsuits will increase
With planting underway for the 2019 season, the hemp industry is likely to see more production lawsuits like these, especially when farmers harvest their crops in the fall, attorney Jesse Mondry of cannabis law firm Harris Bricken in Portland, Oregon, told Hemp Industry Daily.
But farmers can use these cases and others like them to learn how to avoid litigation.
“Growers need to draft their contracts very carefully to provide the adequate protections in terms of things like who is going to cover the cost of production and where and when CBD testing is going to be performed,” Mondry said.
Best farming practices haven’t been standardized for hemp yet, leaving that terminology open to translation by the parties involved in a contract.
“What you start seeing in some of these contracts is that the growers are being stuck with ‘best farming practices’ and then having to live up to standards or requirements that are really vague,” he said.
“I don’t know if anyone knows what that means yet.”
Farmers can avoid litigation
Mondry wrote in his firm’s Canna Law Blog about the lawsuits and how farmers can avoid legal production disputes by setting up an Agricultural Production Contract (APC).
An APC is an agreement between farmers and contractors for producing a commodity, which specifies production practices and the expected quantity, quality and agreed-upon payment. An APC also identifies parties responsible for supplying production resources.
“APCs are used by farmers, ranchers and agribusinesses to manage risk and control expenditures. Payment is typically predetermined and outlined in the contract,” Mondry wrote.
He said farmers should consider several factors before signing an industrial hemp production contract, such as:
- Do state laws restrict or regulate the terms of agricultural-production contracts?
- What are the contractual and regulatory consequences for a farmer and buyer who do not quite follow the letter of the law governing agricultural-production contracts?
- What happens if the state licensing authority revokes the grower’s ability to sell, store or transfer hemp?
- When will the testing for CBD or other components of hemp occur?
- How is the hemp chain-of-custody maintained and documented – and who is responsible for this?
- What are the repercussions if something goes awry?
Ultimately, a generic form agreement will not work for anything cannabis-related, especially production – and often those agreements do more harm than good, Mondry wrote.
“The scope and scale of commercial hemp production is likely to dwarf the sort of farming operations that one sees in the recreational cannabis industry, so the dollar values and the corresponding risks are much higher for everyone involved.”
Laura Drotleff can be reached at [email protected]