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Cannabis businesses often use letters of intent (LOIs) to get agreed deal terms in writing before spending time and money negotiating the definitive written contract. LOIs can be a big help, especially with a complicated deal. But they are easy to botch, and can lead to some pretty devastating consequences if not done right.
Be careful for unintended binding LOIs
In the majority of situations, parties to an LOI want them to be fully or partially non-binding. These LOIs are intended only to be outlines of a deal that the parties can use in negotiating finer points. Some provisions may end up being binding, like confidentiality or exclusivity provisions. But the majority of terms are often left to be fleshed out.
The problem is that some LOIs do a pretty bad job of clarifying what is and is not binding. This leads to two pretty bad potential outcomes. First, a provision intended to be binding could be construed as non-binding. Imagine the buyer in a deal wanted the seller locked in to an exclusivity obligation for 60 days after signing, but the LOI didn’t clearly specify that this was a binding obligation (as
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