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Colo. Judge Won't Block State Pot Vendor In Fee Dispute

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Law360 (July 17, 2023, 8:14 PM EDT) -- A Colorado state judge won't stop a state vendor from withholding mandatory tracking tags from a cannabis dispensary chain, ruling Monday the dispensary has other legal options to resolve a dispute over more than $28,000 in unpaid fees.

National Green Source LLC has testified it would either go out of business or get in trouble with Colorado without access to tracking tags from Metrc LLC, which the vendor is withholding until the fees are paid. In an order Monday, U.S. District Judge Sarah Block Wallace said the dispensary chain has another option: to pay the fees, and sue Metrc for damages later.

"Here, even assuming the worst-case scenario, which is that [National] Green chooses not to pay the monthly fees and suffers lost profits, there is an adequate remedy at law — monetary damages," Judge Wallace wrote, finding the dispensary has not proven it would suffer "irreparable harm" without a court order ensuring access to the tags for the duration of the litigation.

National Green Source, which grows marijuana and sells cannabis products at five retail locations, filed a lawsuit in June against Metrc over more than $28,000 in allegedly unpaid "industry support fees" that date back almost a decade. Metrc claims it started charging the fee in 2014, but didn't actively enforce payments until early 2022. 

Colorado contracts with Metrc to track marijuana inventory from the time plants are considered viable through sale of products at medical or recreational retail stores.

Starting in April, Metrc barred National Green from buying new radio frequency identification, or RFID, tags until the fees are paid. State law requires marijuana licensees buy the tracking tags from a state-approved vendor — Metrc is the only one.

National Green has said it will run out of tags in about six weeks, when its next crop of marijuana plants will mature and, under state law, either need to be tagged or destroyed.

In Monday's order, Judge Wallace was unconvinced by National Green's arguments that it can't pay the fees to regain access to the tags. The dispensary chain argued that voluntarily paying the fees — which it claims Metrc is collecting without legal authority — might risk waiving its rights to recover them later. Metrc has also added limitation of liability provisions to its contract that would bar National Green from recovering the fees, the dispensary claimed.

Both of those arguments lack support, Judge Wallace wrote.

"The court, however, is unable to find any case law that would support the notion that a limitation of liability clause can be avoided by the court ordering injunctive relief allowing a plaintiff to avoid incurring damages," according to the opinion.

Although Judge Wallace declined to grant a preliminary injunction forcing Metrc to allow the dispensary to buy tracking tags, she said National Green does have a reasonable chance of succeeding on its claims that the state vendor breached their contract and violated the Colorado Consumer Protection Act.

Metrc argued at a hearing last week that, through its agreements with the state of Colorado, it is empowered by state regulations to collect the monthly fee from licenses.

Judge Wallace rejected that notion.

"If [National] Green's CCPA claim was merely arguing that Metrc does not have the authority to charge the $40 monthly fee, the Court would agree that the CCPA claim fails," the judge wrote.

"The question here … is whether Metrc provided proper notice to the licensees that they were required to pay the monthly fee given the absence of any mention of the fees in the contracts between Metrc and the licensees and the complete absence of any invoices between 2014 and 2023," according to the order.

A previous temporary restraining order that required Metrc continue selling National Green the tracking tags expired last week.

The temporary restraining order granted by U.S. District Judge Andrew J. Luxen "provided us the immediate relief we needed at the time," National Green said in a statement Monday. 

"We are glad the court took the time to consider the strength of our claims and found that we are likely to succeed on the merits," the company said. 

An attorney for Metrc declined to comment Monday. 

National Green Source is represented by Keenan M. Jones of Frantz Ward LLP.

Metrc is represented by Jessica J. Smith and Aja R. Robbins of Holland & Hart LLP.

The case is National Green Source LLC v. Metrc LLC, case number 2023CV31838, in the Second Judicial District of Colorado.

--Additional reporting by Daniel Ducassi and Jonathan Capriel. Editing by Caitlin Wolper.

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