High on Pot Practice?

High on Pot Practice?

Cannabis law practice is a double-edged sword at the moment.  The legal needs of this budding industry can provide plenty of work for a wide variety of lawyers or, if the new US Attorney General gets his way, it could fizzle out.

A majority of states legalized marijuana for medical purposes and, so far, eight states and Washington DC legalized recreational use, as well.  See here for a current map of marijuana legalization in the U.S.  The industry is estimated to be worth more than $6 billion now and is expected to reach $50 billion over the next ten years.

Despite its increasing acceptance, with polls conducted in October 2016 showing almost 60% of Americans in favor legalization, pot remains illegal under the federal Controlled Substances Act. Former President Barack Obama’s Justice Department allowed states to set their own marijuana policies and urged federal prosecutors to refrain from targeting state-legal cannabis operations. But this stance is not law and can be reversed by the Trump administration.  New Attorney General Jeff Sessions has indicated an intent to more strictly enforce federal law prohibiting the sale, cultivation, transportation, or possession of marijuana.

Conflicting federal and state laws create a confusing legal landscape but cannabis industry clients continue to walk the legal tightrope and grow their businesses.  Laws and regulations are constantly changing and vary from state to state and sometimes even city to city.  If the current trend continues, and more states decriminalize or legalize pot and set up their own regulatory structures, the situation will become even more complex.

The industry is growing quickly and, as with any fledgling company in any new business sector, clients need a wide variety of standard legal services such as how to set up a business structure, negotiate agreements, complete license applications, and comply with local and state laws involving not only the regulation of the marijuana business, but also relating to real estate, agriculture, zoning, and tax law. Intellectual property law comes into play as some marijuana growers seek to patent their plants, as well as trademarking the names and logos of various strains.  And, because the industry is regulated to provide safe medical products, administrative and regulatory lawyers are necessary.

Banking and finance lawyers also have plenty to offer marijuana business clients. The reticence of financial institutions to get involved in the cannabis industry further complicates startup financing and everyday banking transactions. Currently, marijuana growing and selling is largely a cash business. It isn’t illegal, per se, for banks to accept proceeds from these businesses, but guidelines issued in 2014 by the Financial Crimes Enforcement Network of the Department of the Treasury, known as FinCEN, require stringent compliance programs before proceeds from a state-licensed marijuana business can be deposited in banks. Because these programs are expensive, and considered by many banks to be too risky, many shy away completely.

Employment law raises particularly sticky issues not only for new pot businesses but also for any existing business client. Employers must understand how their existing policies are affected by employees who are using marijuana medicinally or recreationally outside of the workplace. Like alcohol use, even if it’s legal, it still can be impermissible on the job. The trickier question is medicinal use, where discrimination laws may impact the situation.

Until recently, smaller law firms and solo practitioners dominated cannabis law practice. As the industry grew and its legal needs diversified, larger, full-service firms joined the act. Foley Hoag is only the latest Biglaw firm to publicly do so, announcing its entry in the field in February 2017.  Other large firms including Fox Rothschild, Davis Wright Tremaine, Seyfarth Shaw, Stoel Rives, and Thompson Coburn are growing their marijuana practices, as well. Some law firms already had “regulated industries” practice groups to advise clients in the alcohol, tobacco and firearms industries and merely expanded that practice to include pot.

Establishing a marijuana practice still requires law firms to weigh the fact that cannabis remains illegal under federal law. There are both ethical and reputational issues involved, in addition to differences of opinion among law firm partners about the wisdom of making such a move. Law firms with offices in multiple states find the question further complicated when some of its offices are in states that legalized both medical and recreational pot use, and other offices are in states that legalized medical use only or where marijuana use is completely illegal.  For some, the impact on obtaining and pricing appropriate malpractice insurance or suffering negative perceptions on the part of other clients are a concern. But those considerations appear to be of less importance on balance as law firm revenue growth opportunities from cannabis practice increase.

State bar associations also are grappling with ethical questions surrounding providing legal services to cannabis clients.  Both Pennsylvania and California, for example, established ethics rules allowing lawyers to counsel clients about conduct expressly permitted by their state laws, so long as they also counsel those clients about potential legal consequences under other applicable—including federal—laws.

Lawyers and clients involved in the marijuana industry are facing not just the question of the new administration’s intentions regarding federal drug law enforcement. With laws and regulations in such flux and varying from state to state, lawyers need to keep abreast of developments and establish reliable referral networks to assist clients with needs across various jurisdictions.  In June 2015, the National Cannabis Bar Association launched.  Based in the San Francisco Bay Area, its members span the country.  Its mission is to educate and connect lawyers to promote excellent, ethical, and advanced legal assistance to the expanding industry. Its founders believe that a resource like the National Cannabis Bar Association will add to the credibility of the field, giving lawyers the tools and education they need to serve their clients in the most ethical and professional way possible as the industry grows and changes.

 

Valerie Fontaine

Valerie Fontaine

Valerie A. Fontaine earned her JD from UC Hastings College of Law in 1979 and her BA, Phi Beta Kappa and magna cum laude, from UCLA. She was on the Editorial Board of COMM/ENT, a Journal of Communications and Entertainment Law. Valerie practiced law with a prominent Los Angeles law firm and entered the legal search profession in 1981. Valerie serves as Secretary to the Board of Directors of the National Association of Legal Search Consultants (NALSC).
Valerie Fontaine

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