It’s time to lawyer up in the cannabis business. And more law firms are deciding to dip a toe into the tricky waters of cannabis law to help the growing industry. But these law firms will have to deal with risky ethical issues and an uncertain legal landscape that lawyers, for the most part, like to avoid. Lawyers are all about avoiding risk, or at the very least, protecting their clients from risky situations. And a business based on an illegal Schedule 1 substance is a giant red flag.
As more noise comes out of the Department of Justice (DOJ) suggesting that there is more scrutiny about the cannabis business to come – the latest being that the DOJ is now working closely with the Internal Revenue Service (IRS) in reviewing what cannabis businesses are doing – to the fear that the Rohrabacher-Farr amendment may be struck from the upcoming budget at the end of September (which does not include language protecting banks from penalties for working with state-legal marijuana businesses), to the fact that at any time the Cole memo allowing banks to do business with the industry could be rescinded or rewritten by a misinformed head of the DOJ, Jeff Sessions, it’s suddenly gotten a lot riskier for a serious business person to get involved in the cannabis industry with hopes of scaling up.
But lawyers see those uncertainties as fodder for effecting historic changes, creating new rulings and working on revisions of rules – along with collecting serious money to be made in legal fees counseling and protecting cannabis clients.
To get in the cannabis legal game, it’s not as simple as just adding a cannabis practice. There is some intense due diligence needed first. The reality is that any lawyer or law firm working in the cannabis industry would be exposed to malpractice, criminal prosecution, bar sanctions, the potential loss of their license and limited insurance protections. And then there are the ethical considerations.
Rule 1.2(d) of the American Bar Association (ABA) Model Rules of Professional Conduct states that “a lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client, may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.”
Some states have sought to revise that particular rule. For example, Illinois and Oregon both allow a lawyer to counsel clients in a business that conflicts with federal law, as long as they tell their clients that.
California does not have a rule of professional conduct that specifically prohibits a lawyer from assisting a client in engaging in an action that the lawyer knows is a crime. Currently, California’s Compassionate Use Act and Medical Marijuana Program Act, both of which offer some immunities from criminal prosecution for growing, distributing and consuming cannabis, “exist side by side” with the Controlled Substances Act, and “inherently conflict,” according to Opinion 527 by the Los Angeles County Bar Association Professional Responsibilities (LACBA) and Ethics Committee.
The LACBA states that a member’s representation of a client who is cultivating, distributing or using marijuana in a manner that falls within the California law immunities may nevertheless violate a number of federal statutes. “A lawyer’s duty under the Model Rule of Professional Conduct 4-1.2(d) states that the lawyer cannot aid a client in committing a crime – and that doesn’t go away even if federal laws are not being enforced.”
What that means is that a cannabis business client can’t use for a defense that they were operating their business legally on advice from their lawyer when it’s a federally illegal business. Plus, any conversations they have with their lawyer cannot be considered privileged because it concerns an illegal activity, meaning that those conversations can become part of a court case.
But even with all this working against them, more and more law firms are seeing the upside of a growing industry that has expanded across the country and is set to grow exponentially in 2018, notably as California triggers the official start of their recreational market in January.
Dozens of solo practitioners are getting involved. But it’s the bigger multi-state law firms who are a creating and building a cannabis practice because they can absorb or manage the risks better, with more resources to draw from.
There are a growing group of larger law firms now working with cannabis clients, like Chicago-based Thompson Coburn, with 380 attorneys practicing in 40 areas of law from five offices spread across the U.S. including in Washington D.C., and eight partners listed as working in the cannabis practice space.
Or Fox Rothschild, based in Washington, D.C., listing 40 partners as part of their cannabis practice. That firm has represented dispensaries, management companies and cannabis-related startups in debt and equity financing matters, and secured medical cannabis cultivation and dispensary licenses for more than a dozen applicants in California, Illinois and Pennsylvania.
But that is just the tip of the iceberg. More firms are getting on board, bringing more cannabis-specific backgrounds to the practice.
One of the biggest law firms in Napa, California, Dickenson Peatman and Fogarty, which serves clients in the wine industry, announced the creation of a cannabis practice group in August, based in its Santa Rosa office, to be led by Erin Calstrom, who served on the Santa Rosa City Council from 2012-2016 where she served as vice mayor, and twice chaired the cannabis subcommittee.