Contracts Related To MMJ Are Enforceable In Arizona

On April 18, 2017, the Arizona Court of Appeals ruled that contracts related to businesses involved in medical marijuana are not void for illegality. In Green Cross Medical, Inc. v. Gally, the court considered whether a landlord could lawfully terminate a lease for space to be used in operating a medical marijuana dispensary because the underlying purpose of the lease was illegal, rendering the lease unenforceable. The trial court granted the landlord’s motion for summary judgment holding that the lease amounted to a conspiracy to sell or transfer marijuana and therefore violated both state and federal law – rendering it void for illegality.

The Court of Appeals reversed. The Court of Appeals found that the Arizona Medical Marijuana Act granted immunity to dispensaries in compliance with the AMMA terms and ruled that the grant of immunity extends to entities and individuals doing business with dispensaries. The court concluded that any other interpretation would lead to absurd results.  

The Court of Appeals also rejected arguments that the landlord could be prosecuted for accomplice liability, conspiracy or facilitation because each of those charges require an underlying criminal offense, which does not exist given the passage of the AMMA.

Finally, the Court of Appeals ruled that in balancing the federal government's interest in enforcing the Controlled Substances Act against Arizona’s interest in enforcing the AMMA, a commercial contract is not void because it could be construed as a violation of the CSA. The court relied on the fact that the Congress and the Department of Justice have, for the time being, forbidden enforcement of the CSA as it pertains to operation of marijuana enterprises authorized by state law. The court also considered equitable principles and potential unjust enrichment to parties who might use an illegality argument to secure an unconscionable windfall.

This ruling will give some level of comfort to those businesses and individuals dealing with entities operating under the AMMA and takes another step toward legitimization of AMMA-related businesses.