Los Angeles Cannabis Litigation: Cannabis Tenant Prevails

Cannabis litigation is growing as the industry matures. Recently, we’ve seen a suit related to false advertising, but we’re also seeing more traditional business litigation around partnership issues and contract breaches. In Los Angeles, the repeal of Prop. D and implementation of Measure M caused a lot of industry infighting, some of which led to litigation. In particular, the initial rush for eligible real property in the city led many landlords to lease to the highest bidder. Out of that rush is now springing more landlord/tenant cannabis litigation.

CJ World’s cannabis litigation

In the case of CJ World v. 147-151 W. 25th St LLC (which was consolidated with 147-151 W. 25th St. LLC v. GRG Collective), the allegations between the parties centered around Phase II licensing in the City of Los Angeles. Specifically, plaintiff CJ World alleged that 147-151 W. 25th St. LLC (the “landlord”):

. . . saw an opportunity to nearly double the monthly rent [it was] collecting from [its] long-time tenant, CJWorld-LA (“CJ World”), a cannabis cultivation business. This opportunity came in the form of Downtown Natural Caregivers, Inc. (“DNC”), a competing cannabis business that approached [the landlord] about leasing the property for its own cultivation operation.

Basically, CJ World, a pre-existing Phase II cultivator in L.A., alleged that its landlord leased CJ World’s property out from under it to DNC, a Phase I “existing medical marijuana dispensary” (“EMMD“), that was willing to pay more rent. Under Measure M, EMMDs were allowed to seek licenses before non-retail applicants, like CJ World. And on October 23, 2018, DNC secured temporary approval from L.A.’s Department of Cannabis Regulation (“DCR”) at CJ World’s location while CJ World still held a lease to cultivate at that property. CJ World was represented by Arash Sadat and Brie Mills of Mills Sadat Dowlat LLP.