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How the FTC’s Non-Compete Ban Will Impact Cannabis Businesses

On April 23, 2024, the Federal Trade Commission issued its final rule prohibiting employers from engaging in non-compete agreements with their employees. Passed by a 3-2 vote, the Commission anticipates this ban will promote new business formation and innovation, reduce healthcare costs, and increase worker earnings.

The new rule also invalidates existing non-competes for the vast majority of U.S. workers, making them unenforceable. Limited non-compete agreements related to the sale of a business or for certain senior executives in industries such as the nonprofit sector remain valid.

Despite cannabis’s present status as a Schedule I drug (which is likely to change soon), the FTC’s rule is still binding for the cannabis industry. Cannabis businesses and stakeholders should be aware that non-compete agreements with employees, including but not limited to those who work on the floor, dispense to consumers, or operate security, will no longer be valid once the regulation takes effect.

It has also historically been common practice for cannabis companies to enter into non-compete agreements with executive and leadership personnel as a means to incorporate confidentiality and trade secret protections. With this protection no longer available via these agreements, cannabis operators and employers should consult with experienced counsel to explore alternative avenues to protect their valuable IP and trade secrets shared with management personnel.

The FTC’s new rule is certain to have massive ramifications for the cannabis industry, which has traditionally relied on non-compete agreements as a contractual avenue to secure protections for proprietary information. Now, however, cannabis businesses must review existing contracts, employment agreements, and licensing agreements to ensure their IP and confidential information remain properly safeguarded.

Mitigating concerns from the FTC’s new rule should be at the top of every business’s checklist. Additional information on this new rule can be found in our recent blog.

With a practical approach, Chad provides compliance guidance and litigation defense on matters related to cannabis, advertising and marketing, teleservices, and other consumer protection issues.

2560 1707 Walter (Chad) Blackham
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