June 01, 2015 Asked and Answered

Marijuana businesses need lawyers, but how do you build that practice? (podcast with transcript)

By Stephanie Francis Ward

It’s a federal offense to grow, sell or use marijuana, but a growing number of states have laws permitting its use under specific circumstances. In Alaska, Oregon, Colorado, Washington and the District of Columbia, the product is available for recreational use. In Colorado and Washington, it may be sold commercially, and is taxed and regulated by the state. The University of Denver’s Sturm College of Law has started to offer classes in marijuana law. There’s a need for lawyers to represent cannabis businesses. But how can you advise these clients and develop this as a specialty while remaining on the right side of legal ethics?

In this month’s Asked and Answered, Seattle lawyer Ryan Espegard chats with the ABA Journal’s Stephanie Francis Ward about how he advises the marijuana industry—being mindful of state and federal regulation—and what sorts of business development activities have worked for him.

Podcast Transcript

Stephanie Francis Ward: As more states decriminalize marijuana, either for medical purposes or personal use, many say that the needs for lawyers specializing in cannabis law is growing. But is the profit potential worth it for attorneys, considering that cultivation, sale and use of marijuana are still illegal under federal law?

I’m Stephanie Francis Ward, and joining me to answer that question on today’s Asked and Answered is Ryan Espegard, a senior associate with Seattle’s Gordon Thomas Honeywell. He practices in Washington State, where it’s legal for individuals 21 and over to have small amounts of marijuana, and the items are taxed by the state.

Ryan, how did you get involved in cannabis law?

Ryan Espegard: Well, thank you, Stephanie. I first began getting involved in cannabis law right around the time Washington was legalizing marijuana, which was in November of 2012. I had an interest in the outcome of that legalization and the impact it was going to have, particularly on land use issues. Just a particular interest of mine. I began participating in public hearings and following that issue, and through that participation began developing a client base that has kind of snowballed since then.

Stephanie Francis Ward: Would you say do you have a specialty? And if so, is it land use, in terms of where places can be?

Ryan Espegard: Yeah. So, my specialty prior to cannabis industry in Washington involved a lot of different types of litigation; land-use litigation was one of those categories. So I took a personal interest in cannabis related to land-use litigation at that time. But since cannabis has become legal and my practice has shifted towards the regulatory aspect of cannabis, my practice has changed significantly towards the business aspects and regulatory aspects of the industry.

Stephanie Francis Ward: OK. And would you say your experience representing cannabis-focused businesses, is that different than representing a bar? Or maybe a pharmaceutical company?

Ryan Espegard: Yes and no. They have many of the same legal issues as any business would have. Our clients are asking us to form business entities, help them with state law, help them with their financiers, help them with property transactions.

However, there are some differences. There’s a wide range of business and legal knowledge that our clients may have. We have some very skilled business people as part of our cannabis clients, and we also have some people that really haven’t ever worked with a lawyer and do need a lot of hand-holding, which may be different that some of the other practices.

Additionally, there are unique legal issues related to marijuana business in Washington that changes the dynamic of the advice that we’re giving our clients.

Stephanie Francis Ward: I’m curious: As I mentioned earlier, it is technically still a federal offense, whether or not the Feds enforce that. It doesn’t really seem to be happening now. But I do think that’s a question a lot of lawyers wrestle with. I mean, did you wrestle with that concern that, “What if I have a federal government issue?”

Ryan Espegard: I personally have not wrestled with that issue. As far as being able to represent clients in the cannabis industry, I have from Day 1 thought it is completely appropriate to represent these clients. There’s an issue of conflict of law between federal law and state law at this time. But I don’t believe it is right to deny legal services to this entire industry, entire group of people that needs legal representation probably more than most.

However, there are obviously RPC or ethical obligations that attorneys have to not assist clients in violating criminal law, but our state has adopted a comment to the RPCs to kind of address that and alieve some of the tension and—

Stephanie Francis Ward: I’m going to stop you for one second. When you say RPC, you mean Rules of Professional Conduct, right?

Ryan Espegard: Yes, Washington’s ethical rules are the Rules of Professional Conduct—RPC.

Stephanie Francis Ward: You mentioned that this industry needs legal help more than most. Why do you say that?

Ryan Espegard: Well, one of the main issues, obviously, is the criminal aspect. But even stepping away from that, in Washington these folks are stepping into unchartered territory. The regulations are new; no one’s had to deal with them before. The zoning issues that cities and counties are developing are completely new. The financing rules that folks need to follow if they’re going to enter into any of these business types are completely new. If folks don’t have legal representation as they’re trying to go through the licensing process and run these businesses, they will surely run into difficulties at some point.

So I do think it’s critical that all of them have legal representation to do it right.

Stephanie Francis Ward: Can you tell me about the process you went through to find a firm, a business firm that would support you in this area of law? How did you go about finding the right fit and do you think it was a bit more difficult because you were interested in cannabis law?

Ryan Espegard: I wasn’t searching for a firm. I was already in the right place. I was here with a firm that valued the entrepreneurial aspects of associates. I, like I said, had been doing a lot of litigation work, but had been expressing interest in representing a client base that was interested in getting involved in the cannabis industry.

The firm that I was in, again, valued that entrepreneurial aspect of what I was trying to do and was open to it.

Some of the partners here were not eager for us to jump into that arena, and others thought it was very appropriate and encouraged me to do so. But at the end of the day, everybody has embraced it as a very legitimate practice area. I feel lucky to have started my career here.

Stephanie Francis Ward: Do you get the sense in Washington State that maybe a few years ago, some partners would be like “No, I don’t really think we should do that,” but now people are much more open to have the practice area at their firm? Is it getting more acceptance and maybe less nervousness from the practice?

Ryan Espegard: Definitely getting more acceptance. At about the time when I was starting to become involved with cannabis businesses, there were other firms in Washington of our size that simply were developing policies to refuse to provide legal services to cannabis businesses on the ethical issue that we mentioned before. They didn’t want to trip over the Rules of Professional Conduct.

There are other individuals, and we encountered this is in our own firm, that were concerned about just the impression it may leave with other clients.

We may have clients that disagree personally with the legalization of marijuana, and do we want to hold ourselves out as representing that industry if it conflicts with the personal beliefs of our other clients? I’m sure other firms have wrestled with that as well.

But over the last couple years, we’ve seen more and more firms embrace this business and they are actively marketing to the cannabis community now, where they weren’t two years ago.

Stephanie Francis Ward: OK. And I’m curious, in your client communications, in most of that, do you state something about the caveat of federal law in client communications?

Ryan Espegard: Yes, we do. We don’t—not in all of our communications but in our original engagement letter and representation agreement, it does have a section about—

Stephanie Francis Ward: Can you—what does it say basically? Can you tell me?

Ryan Espegard: Yeah. I’m not going to read it verbatim, but it essentially acknowledges that the distribution and possession of marijuana remains a federal crime. We acknowledge it in that letter. We inform our clients that we are not giving advice specific to the criminal aspects on a federal level of that crime, and they shouldn’t construe any of the advice we’re giving as helping them to commit that crime. Rather, the advice that we’re giving is to comply and navigate Washington State law.

Stephanie Francis Ward: And is that language that the firm crafted itself or is it pretty much pulled from your Rules of Professional Conduct? Or maybe a little bit of both?

Ryan Espegard: No, it was actually very—it was developed by our firm specifically.

Stephanie Francis Ward: I see.

Ryan Espegard: Our Rules of Professional Conduct still have kind of a caveat in there about whether or not this is going to be OK. There is the comment that specifically allows attorneys to represent people in the cannabis industry up until the federal government changes its enforcement priorities. So, even with the ethical rules that we have now, it’s not on a solid footing if the federal government would change its stance towards this industry.

Stephanie Francis Ward: What are some business-development activities in terms of cannabis clients that have worked well for you that you can share with us?

Ryan Espegard: Well, the No. 1 activity of value for me was simply participating in the state rule-making for development of regulations for the cannabis industry and also participating in public hearings regarding local zoning.

I was doing that out of a personal interest at the time, and attending those hearings and being seen by folks that were interested in the cannabis industry helped me develop a client base immediately. So that is definitely a recommendation I would have.

Another good source of clients is simply from other attorneys that are holding themselves out to be representing the cannabis industry. There are numerous solo practitioners in small firms in Washington that are representing such clients and they are running into conflicts frequently between their clients and have to refer work out. So that has been another great source of client development.

Stephanie Francis Ward: What would like—can you give me an example of what a conflict might be for a small firm in the cannabis industry?

Ryan Espegard: We have, just as an example: Some of the people that have gone into business together two years ago are already running into conflicts amongst themselves. So there is some business litigation developing. And where you may have had a firm that helped organize that business, they can’t represent those clients again. Another possible conflict that seems to come up a lot is there are a lot of transactions between these businesses and licenses of people trying to invest in these businesses.

So, if an attorney represents one particular business and was adverse to an investor at one point, they may not be able to represent the same people in another deal. So a lot of the business transactions, we’re getting referrals to represent the opposite side.

Stephanie Francis Ward: OK. And are there things you see lawyers trying to do to develop business that maybe don’t work very well? I know in the general media you hear about a lot of times they’ll have seminars when legal marijuana is coming to your state. And I wonder how helpful those are, because anyone can go. Or maybe you’re calling yourself “the 420 lawyer.” I don’t know if that’s a great idea or if people will take you seriously. [laughs]

What are some things that maybe you thought would work for business development for yourself but didn’t?

Ryan Espegard: Everything that we’ve done I think has had some sort of value to it, as far as reaching out to potential clients and meeting them and starting that process. But the one thing where I have maybe felt after the fact that it wasn’t as valuable as I had hoped, are attending some industry events. And that might be some of the seminars you’re referring to. You can go to—I mean, Washington has it all the time now—a monthly seminar or a convention taking place.

And it’s good to go there and learn some issues and meet some people, but you don’t always—unless you have a speaking opportunity at that particular seminar, you’re not going to have the kind of contact you want with all the potential applicants.

I have thought it much more valuable to go somewhere where the people are attending a particular event, and caring about a particular issue and being able to speak at that event.

Stephanie Francis Ward: OK. So that’s pretty much I think how it always is, is business development for lawyers. If you can speak, of course, it’s much better for you.

Another question that I think maybe people don’t like to talk about a lot, but it certainly is important: How do you determine with potential clients who’s serious and who has the financial backing to pay you to get done what they want to have happen?

Ryan Espegard: Well, the first meeting you have with potential clients, you can kind of assess that. Like I said, we’re seeing a wide range of business expertise with clients when they come in the door. Some of have been—have decades of business experience and some have, quite frankly, been growing marijuana in their basement for decades and don’t have that kind of business experience.

And you can assess that pretty quickly and made a decision as to whether you want to represent that particular individual or not.

As far as whether or not they’ll be able to pay their bills, I think that’s the same with any type of client or any industry. We ask for advance fee deposit on a kind of case-by-case basis to give us a semblance of assurance that there will be money there to pay their legal bills.

Stephanie Francis Ward: You mentioned the person who’s been growing marijuana in their basement for a long time. I wondered if maybe—is that really the clients you want? Or maybe it is the client you want and maybe as a business lawyer, you maybe would partner them with somebody who’s been in business a long time and make connections?

Ryan Espegard: It is a difficult judgment call to make. I personally don’t want to work with people that don’t have any business skill and I don’t feel that are going to succeed in the business activities they’re engaging in.

At the same time, I have taken clients where that was kind of my first impression of them and then I’ve been very pleased to have had a different result at the end of the day. They have turned out to be great clients and value my advice and we’re working together to help them succeed.

So, it is a difficult judgment call to make and hopefully you get it right.

Stephanie Francis Ward: OK. And say you’re an attorney and you’re not interested in doing cannabis law, but you have a client who is interested in that. What is a way that you, as that attorney, can find a good referral for your client? How can you find a lawyer who really is good in the cannabis industry and can back it up?

Ryan Espegard: Well, the primary—at least in Washington—the primary thing you want to have with an attorney who is claiming to be a cannabis attorney, is a very good understanding of the particular rules that the industry in facing in the state.

So each state is developing its own rules for their own industry and those rules intertwine with every legal aspect and every question a client may have. So I would start out by simply interviewing or having a phone call with a potential attorney regarding those rules to kind of assess their understanding of them.

There are plenty of attorneys that aren’t labeling themselves as a cannabis attorney or representing cannabis businesses in all aspects. They might be representing clients as kind of a subset of their existing practice. An example might be, if you’re an attorney that does a lot of IP work, intellectual property, that attorney might market to new cannabis businesses. The same might be for a real estate attorney, who might market to property owners that might become landlords to these businesses.

And those attorneys that are doing that type of work can get some specialized knowledge on the regulatory issues they need to know.

Stephanie Francis Ward: And I think that you bring up an interesting point, that issue of marketing yourself as a cannabis lawyer. Maybe even putting cannabis in the name of your firm. Now, you don’t do that. Can you tell me why you opted not to do that?

Ryan Espegard: So, the approach that I have taken from the beginning was rather than representing myself as a cannabis attorney, we wanted to represent our firm as a whole. As a firm that provided a wide range of legal services to businesses and a firm that would treat cannabis business just like any other legal business. And that has gone a long way, I think, for us. Versus, you know, representing ourselves “the marijuana firm.” However, there are other firms in Washington that are taking the opposite approach and have had great success doing that.

One example, real life example, is the Canna Law Group in Washington. They exclusively practice, or those attorneys exclusively practice in the cannabis industry, but their law firm is not the Canna Law Group. That’s actually a name they use for a practice group of the larger firm, which is Harris Moure in Seattle. So, they’ll market a subset of their firm as this cannabis-specific law firm. And they’ve had great success doing that.

Stephanie Francis Ward: And can you estimate for me, what percentage of your client matters are related to the cannabis industry?

Ryan Espegard: That has been changing, I guess, month to month. Now, I would say it’s probably 70 percent of what I do is in some way assisting a client related to cannabis matters. If you asked me that question a year ago, it would have been probably 30 percent. So, it is very quickly changing.

Stephanie Francis Ward: That’s everything that I wanted to ask you. Do you want to add anything else?

Ryan Espegard: I don’t know if I have anything in particular to add. But if anybody listening to the podcast has questions, I’m always willing to answer them if they reach out with email or phone calls.

Stephanie Francis Ward: Well, thank you so much for joining me. And listeners, thank you for joining us. I’m Stephanie Francis Ward. You’ve been listening to the ABA Journal’s Asked and Answered. Please tune in next time.

[End of transcript]

Updated on June 4 to add transcript.

In This Podcast:

Stephanie Francis Ward
Ryan Espegard is a senior associate with Gordon Thomas Honeywell in Seattle. Espegard is a litigator who handles land use and regulation matters, and much of his work centers on advising businesses involved in Washington state’s cannabis industry.