Cannabis Litigation: The Illegality Defense and Damages

Around this time last year, my colleague, Jesse Mondry, wrote about a District of Colorado case, entitled Sensoria, LLC et al. v. Kaweske, et al. , which involved a group of plaintiffs who sought to recover their investment in a cannabis business, Clover Top Holdings. The underlying set of facts involve an all-too-familiar cannabis investment scheme. And, the claims asserted included breach of contract, civil theft, fraud, breach of fiduciary duty. The case is notable though, because over the course of the past year, the plaintiffs ran into an unfortunate problem for this industry: the illegality defense.

We regularly cover the illegality defense on the blog, but for those who are unfamiliar, it comes down to this: “No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act.” It is often the position of the federal courts that because marijuana remains a schedule I drug and is illegal under the Controlled Substances Act (“CSA”), they cannot award any relief that derives from those CSA violations.

How does the illegality defense operate in cannabis litigation?

In Sensoria, the plaintiffs tried not once, not twice, but three times to rewrite their

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