High on Pot Practice?

High on Pot Practice?

There’s no denying it: Cannabis is big business and getting bigger. The recreational market was valued at approximately $11 billion in 2018 and is expected to reach $75 billion by 2030. The legal needs of this budding industry, in an ambiguous and constantly-changing regulatory environment, provides plenty of interesting work for a wide variety of lawyers.

As of January 2019, ten states and the District of Colombia allow adult recreational cannabis use, and 33 states permit medicinal use. More are expected to follow, especially since, in the 2018 mid-term elections, several states elected pro-legalization candidates to governorships. See http://www.governing.com/gov-data/safety-justice/state-marijuana-laws-map-medical-recreational.html for a current map of marijuana legalization in the U.S.

Confusing legal landscape

Currently, the cannabis industry walks a tightrope between conflicting state and federal regulation and enforcement. Despite its increasing acceptance, with the majority of Americans in favor of full legalization, pot remains illegal under the federal Controlled Substances Act. That may change soon, however, since well over 60 percent of congressional representatives now come from states that legalized marijuana in some form.

Moreover, enforcement of the federal laws is in flux. 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. Under the Trump administration, the situation is fluid. Former Attorney General Jeff Sessions chose to more strictly enforce federal law prohibiting the sale, cultivation, transportation, or possession of marijuana, but new Attorney General William Barr told the Senate Judiciary Committee in his January 2019 confirmation hearings that he wouldn't go after marijuana companies in states that legalized it.

Cannabis laws and regulations constantly change and vary from state to state and sometimes even city to city. If the current trend continues, and more states legalize pot and set up their own regulatory structures, the situation will become even more complex. The opportunity to grow with the industry and help shape those regulations and implement them makes for a fascinating and challenging practice.

Legal services needed

As with any fledgling company in a new business sector, cannabis clients need a full range of standard legal services such as: setting up and structuring a business, negotiating agreements, completing license applications, and handling real estate issues. They also need advice relating to agriculture, zoning, and tax law. Because the industry involves medical products, some marijuana clients may require additional specialized administrative and regulatory assistance, as well.

Financing presents thorny legal issues. The reticence of financial institutions to get involved in the cannabis industry 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 require stringent compliance programs before proceeds from a state-licensed marijuana business can be deposited in banks.

But, things are changing. U.S. Treasury Secretary Steve Mnuchin told Congress in 2018 that "we don't want bags of cash" dominating the marijuana economy. And, in February 2019, a U.S. House Financial Services subcommittee held its first hearing on the challenges state-licensed cannabis businesses face in procuring basic banking services. California Treasurer Fiona Ma pleaded with federal lawmakers to enact safe harbor legislation aimed at encouraging more banks and credit unions to accept state-licensed marijuana businesses as customers. The California legislature is considering a bill promoting cryptocurrency as an acceptable method for paying state and local fees and taxes. Former Speaker of the U.S. House of Representatives John Boehner leads the newly formed National Cannabis Roundtable which is pursuing industry-friendly changes to tax laws, banking regulations, and research rules on Capitol Hill.

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

Intellectual property law also comes into play.  Patenting plants is legal but trademarking the names and logos of various cannabis strains is more challenging. Federal law currently prohibits trademarks for “illegal activities” and marijuana remains illegal under federal law.

Privacy is another interesting area of cannabis law practice. For example, a data breach by a pot seller in one state where recreational use is legal may involve residents in other states where it’s not, opening a path for potential litigation. Furthermore, with medical marijuana use, HIPPA and various state privacy laws may apply.

The practitioners

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 by pulling together lawyers from many practice areas into a “one stop shopping” cannabis law group. Those include: Akerman, Davis Wright Tremaine, Dorsey & Whitney, Duane Morris, Dykema, Fox Rothschild, Greenspoon Marder, Saul Ewing, Seyfarth, Stoel Rives, and Thompson Coburn. Several also have industry-related blogs. 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. The National Law Journal’s publication, 2018 Cannabis Law Trailblazers spotlights some of the practitioners. See:

Potential pitfalls

Establishing a marijuana practice 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 issues of 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 continue to 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.

With laws and regulations in such flux and varying by locality, lawyers must 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 http://www.canbar.org/ 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.

To keep abreast of law-related developments in the pot industry, see also Law.com’s “Higher Law” https://www.law.com/briefings/higher-law/ , an online weekly briefing of “all things cannabis”.

(Updated March 2019)

Valerie Fontaine
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