Cresco v. GTI – Non-Competes in Cannabis

MSO Cresco Labs (“Cresco”) has filed suit against MSO Green Thumb Industries (“GTI”) based on the claim that GTI “poached” a former Cresco employee. This employee was Cresco’s director of technical services and had an employment agreement with a non-compete clause. According to the complaint, Tonge was enticed to leave Cresco and to take a similar role at GTI by a GTI employee who also happened to be a former Cresco employee. Cresco claims that the former employee has been reaching out to numerous Cresco employees “urging them to resign to work for GTI, despite knowing that these employees are subject to covenants not to compete.”

While this sort of action is not uncommon in various industries, it calls into question a few interesting developments for modern cannabis. For starters, while Tonge was not a part of this group, many of the large MSOs went through rounds of layoffs over the last 24-36 months, both during COVID shutdowns and in the wake of post-COVID slowdowns in sales. GTI’s spokeswoman commented in a statement that she believed Cresco was wasting corporate resources monitoring former employees in order to enforce their non-compete clauses rather than focusing on their own business. At a time where many companies are struggling to make ends meet, it would appear that devoting substantial money towards blocking former employees from gainful employment might not be the best use of resources.

Beyond that, this lawsuit comes at a time where the Biden administration’s antitrust regulators have proposed to largely ban the use of non-compete clauses. The FTC is considering a prohibition on numerous clauses used in employment agreements which obstruct someone from gainful employment. President Biden stated, “For decades, I’ve fought for the notion that if your employer wants to keep you, they need to make it worth your while with good pay and benefits.” Companies are entitled to protection over their intellectual property through trademarks, copyrights, and patents, and this federal policy initiative shows that those protections are not meant to include control over a person’s ability to work. If that former employee violates IP rights by stealing a patented process, a company will still have the right to enforce their patent.

California, North Dakota, and Oklahoma, as well as the District of Columbia, have already outlawed the use of non-compete agreements and other states have restricted their use among certain groups of workers. With this change in policy at the FTC, it would appear the federal government is looking to make this the overarching policy in the US. We likely won’t see a final rule in place until 2024 but it does point to a big shift for worker’s rights. If you believe you are being subjected to an unlawful non-compete or need advice and guidance on creating enforceable non-compete clauses, feel free to reach out: [email protected]; Portland Cannabis Business Lawyer 503-420-5033.

Matthew Cleary

Disclaimer: The contents of this blog is considered an advertisement under CA law. The information in this blog post (“post”) is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from Cultiva Law, PLLC or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction. Mat Cleary [email protected]

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