When compiling the new cannabis law chapter this year, one question loomed largest; what does it mean to be a cannabis lawyer or law firm, and why should cannabis company executives need one? The answer is one that, like the law itself, varies greatly based on geography; the vastly complex web of state regulatory regimes, complicated by continued federal illegality, creates local markets moving at different paces. The regime of the state in question plays a large part in which law firms and practitioners are able to take advantage of this burgeoning market.
As of June 2019, the use of cannabis is federally illegal. Medical use is legal in 47 states, with 14 of those restricting THC content of legal products. Recreational use is legal in DC and 10 states, and decriminalized in a further 13. All jurisdictions which have legalized recreationally allow licensed commercial cultivation or distribution, other than Vermont and DC.
In areas with limited or no legal use, government relations is a key area of focus, especially for businesses hoping to expand across multiple states. While scheduling on a federal basis and reclassification statewide are the best-known issues, just as important is the work being done to integrate provisions for hemp products into other bills. Perhaps the most headline-grabbing of these came with the 2018 Farm Bill, the effects of which include the legalization of hemp crop growth, the extension of protections for research into its benefits and growth, and the inclusion of the plant and its farmers in a number of existing provisions. The combined effect is emblematic of a key goal for many legislative advocates: the normalization of cannabis and CBD legally and socially.
Especially in states where use has not been legalized or decriminalized, litigation remains a large part of the work generated in this sector. Criminal defense and civil litigation firms are referenced by many as the earliest to specialize in cannabis work. This has provided an opportunity for these firms, often smaller outfits, to make a name for themselves; in more developed markets such as Colorado the development of such firms can be seen as a model for those in more recently legalized states. While some continue to specialize in the contentious elements of the sector, a number have expanded to become “one-stop” or “full-service” cannabis firms, known for their knowledge of the landscape, connections in the industry and ability to guide businesses through a wide range of challenges.
One particularly common challenge which emerges as jurisdictions legalize, both medically and recreationally, is that of licensing. Guiding businesses through applications for dispensary, cultivation, manufacturing and distributor licenses is a rich seam of work for numerous firms. In particular, practitioners with substantial experience in alcohol licensing have been able to transfer their expertise to this area, due to the similarity of the processes and decision-making bodies.
As a highly-regulated industry with so little consistency between state and federal laws, establishing or running a cannabis-related business also presents a need for regulatory expertise across multiple practice areas. This is where larger, often multi-office firms come in to the picture, able to bring in lawyers from different practices to form sector-focused teams. Food and beverages specialists advise companies, particularly those producing and selling edibles, in FDA approval and negotiations. Given the potential psychotropic effects of THC, manufacturers of products containing the substance often require guidance on the relevant laws on necessary warnings and potential personal injury claims. Notably, intellectual property matters are an important consideration for many businesses; these can affect the development of brands, medical products and new plant types.
As the hemp-based economy grows, so does the range and value of the corporate transactions undertaken by businesses within it. Sources identify that, while seed and venture capital financings remain the most commonly handled type of transaction, later-stage M&A deals are rapidly becoming more commonplace. The number of such transactions included in Chambers corporate law submissions doubled between 2017 and 2018. Banking and financing practitioners are also in demand as banks fear falling foul of AML regulations. These firms are likely to be of particular interest to investors and financiers dealing with the sector.
With all of these developments, the range of law firms available to cannabis businesses is not only large, but still expanding. As things stand, there exists a case for two different approaches: Younger businesses may prefer employing a smaller law firm specializing in the cannabis sector, able to act as outside counsel and guide a business through the unique landscape, while turning to larger firms for corporate transactions and other larger-scale work. Secondly, more established or investor-backed businesses may prefer to deal with a multi-office firm with experience across different states and practice areas, able to support them through their growth.However, the market is converging, with a number of once-small cannabis boutiques now growing on a nationwide basis. You may not have to choose between breadth and specialized knowledge.
The information contained herein was gathered during the research process for the Cannabis Law section of the Chambers USA 2019 guide. Sources include interviews with participants in both the business and legal communities as well as work writeups provided by law firms practicing in the sector.