Agreement Beforehand Is the Best Policy Against Risk of Shipment
Larry Mishkin, Hoban Law Group, Litigation Practice Group Counsel
A term that is common to most companies which manufacture or purchase manufactured goods is “F.O.B.,” standing for “Free On Board” or “Freight On Board.” Depending on whose definition is used, or which state’s Uniform Commercial Code statute applies, the term takes on a few different meanings, all of which basically boil down to: (1) who pays the cost of shipping, and (2) who incurs the risk of damage, destruction, or loss of the goods during shipment.
The underlying principle is that by making a designation such as “F.O.B. place of shipment” (or “manufacturer”), those related shipping costs and the risk of the loss are going to become the responsibility of the purchaser at the time when the manufacturer loads the goods onto the shipping transport (be it truck, train, ship, etc.).
If, however, the designation is “F.O.B. place of delivery” (or “purchaser”), then those same costs and risks become the responsibility of the purchaser at the time the goods are unloaded at the purchaser’s warehouse or designated location for shipping.
The significance of this otherwise mundane shipping term to the cannabis/CBD industry cannot be overstated, although it is often overlooked. It is not uncommon that a client or potential client has sought legal guidance to discuss a lost, damaged, or -- worse yet -- confiscated shipment of cannabis, CBD, or products infused with either. With cannabis, it is an “intra-state” shipping problem, while with CBD or CBD-infused products, shipments are confiscated at state and international borders.
Too often, the client has a written contract that says very little about which party, shipper, or purchaser will take responsibility for such types of risks. Then, when there is some loss or confiscation, either each party points the finger at the other, or one party belatedly acknowledges responsibility for the loss. Either way, it is too little, too late, and if they cannot otherwise resolve the issue amicably, both parties are about to incur a very real legal expense.
To avoid any such situation, parties that are shipping or receiving legal cannabis, CBD, or infused products of any kind, should insist on identifying a point in the shipping process when the risk passes from seller to purchaser. The negotiation of the issue may well necessitate negotiating other points (e.g., if the purchaser wants the shipment to be “F.O.B. place of delivery,” then the seller will likely attempt to negotiate a higher purchase price to help defray the costs of the potential risks that are being pushed onto the seller), but the long-run benefits will outweigh whatever additional work or related expense must be incurred to ensure that the issue is properly addressed up front.
The safest approach toward anticipating a potential problem is to speak with a cannabis attorney about any potential shipping risks and how to best address them. Then, if ever one faces a confiscation or loss during shipment, the litigation counsel surely will look kindly on a company’s having taken the time to do so.