There’s no denying it: Marijuana is big business and getting bigger. The legal cannabis industry is projected to hit $32 billion in sales this year, according to New Frontier Data, with revenues expected to reach $63 billion by 2028. According to the National Conference of State Legislatures, by October 2022, 19 states plus the District of Colombia and Guam allowed adult recreational cannabis use, and 37 states, three territories and the District of Columbia permitted medicinal use. Five more states – Arkansas, Maryland, Missouri, North Dakota, and South Dakota – will vote on recreational marijuana in November 2022. 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.
Confusing legal landscape
Currently, the cannabis industry walks a tightrope between conflicting state and federal regulation and enforcement. On October 6, 2022, President Biden offered pardons to people who were convicted of simple marijuana possession under federal law and encouraged states to follow suit. His pronouncement applies only to federal prosecutions, though, and does not extend to those convicted under state law—a much larger cohort.
Since cannabis remains a Schedule I drug under Federal law, it remains illegal under the Controlled Substances Act and, technically, every state-level marijuana legalization program is in violation. Under the past several presidential administrations, however, the federal government simply looked the other way when it came to enforcement.
In his October 6, 2022 announcement, Biden also called for a formal review of marijuana’s classification. While it’s possible that the federal government would continue its policy of non-enforcement, it’s also possible that it could impose onerous DEA regulations on the industry. If the government decided to move cannabis to Schedule II or III, it would be subject to the same regulation as any other drug on those schedules. This would change the legal landscape for all cannabis businesses overnight, creating even more work for lawyers.
As it stands, without a uniform federal legislative scheme, 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 statutory structures, this already highly regulated industry will become even more complex. The opportunity to grow with the industry and help shape, interpret, and implement those regulations 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.
Until and unless cannabis is declassified as a Schedule I drug, financing will continue to present 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 which brings a whole host of problems.
Employment law raises particularly sticky issues for new pot businesses and for any other employer. 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.
Law traditionally is a risk-averse profession. Given its ambiguous legality, entrepreneurial smaller law firms and solo practitioners dominated cannabis law practice at first. 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. 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. By now, more than a dozen AmLaw 200 firms have significant cannabis practices. Several also have industry-related blogs. If the federal prohibition ends, expect to see virtually every law firm get in on the action.
For now, 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 number of states legalizing pot and 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.
Keeping abreast of changes
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 (now known as the International Cannabis Bar Association https://incba.org/ ) launched. Based in the San Francisco Bay Area, its members now span the globe. Its mission is to educate and connect lawyers to promote excellent, ethical, and advanced legal assistance to the expanding industry. Its founders believed that such a resource would 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 October 2022)