The Grass Grows Greener for the Cannabis Legal Market, Despite Risks

The (Somewhat) Legalized U.S. Cannabis Market by the Numbers

The legalized cannabis industry employs approximately 200,000 workers and is estimated to generate $11 billion in sales in 2018. According to research from Cowen & Co., this figure is expected to reach $75 billion by 2030. Nine states and the District of Columbia allow for recreational use of marijuana. Medical marijuana is legal in 31 states, Puerto Rico, and Washington, D.C. In Oregon alone, the estimated economic impact of the legalized cannabis industry is roughly $1 billion.

For those states where cannabis is legal, the industry also creates significant tax revenue. Colorado generated almost $250 million in state taxes and fees from the industry sector in 2017. Massachusetts projects tax revenue to reach $63 million annually.

It’s Still Not Legal

Cannabis law presents significant risk for legal practitioners. Though more states are legalizing marijuana to some degree, it remains illegal at the federal level. Specifically, marijuana is still defined as a Schedule I drug under the Controlled Substances Act (CSA), which encompasses drugs that are believed to have no currently accepted medical use and a high potential for abuse. Despite greater public acceptance, former U.S. Attorney General Jeff Sessions has let his disdain for the industry be widely known. Though Mr. Sessions did not give a clear answer about the enforcement of federal prohibition laws in states that have changed their cannabis policies prior to his departure, as a longtime legalization opponent, he has said, “Federal law remains in effect.”

Importantly, at the beginning of 2018, Sessions, in a one-page memo, rescinded the “Cole Memo.” The Cole Memo, issued during the Obama administration on August 29, 2013, by then-Deputy Attorney General James M. Cole, set forth the Department of Justice’s non-binding enforcement priorities on federal treatment of marijuana production and use that is legal under state law. The Cole Memo did not legitimize cannabis activity, but it did clear the way for states to develop their own approaches regarding the industry. In particular, it provided eight enforcement priorities hat sought to guide federal prosecutorial decisions regarding marijuana-related activity. While individual U.S. attorneys continue to have prosecutorial discretion in their federal districts, it is possible that some federal prosecutors may start filing criminal and civil actions against those engaged directly or indirectly in the cannabis industry.

Potential Criminal and Ethical Risks for the Cannabis Attorney

An attorney representing a client engaged in marijuana-related activity faces numerous ethical issues and potential criminal liability under these circumstances. The CSA holds that it is illegal to manufacture, distribute, or dispense a controlled substance. For that reason, cultivating marijuana, even for medicinal purposes, violates federal law regardless of whether it is permitted by state law. For instance, a lawyer might be charged, along with the client, for aiding and abetting a federal crime under 21 U.S.C. § 846—the federal conspiracy statute.

The tension between federal and state law regarding the legality of marijuana also presents ethical problems for lawyers as they advise clients in the sale and use of marijuana. Any lawyer jumping into the cannabis practice should take into account his or her state’s rules of professional conduct, which typically prohibit attorneys from counseling or assisting clients in criminal conduct and are largely based on the ABA Model Rules of Professional Conduct. Specifically, Model Rule 1.2(d) states that “[a] lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.”

So, can lawyers advise clients about marijuana-related business if it is legal in their state but illegal under federal law? Some states’ ethics commissions have responded by allowing attorneys to provide guidance to clients in the cannabis field. This has led to a state-by-state application of Rule 1.2(d). Arizona, Colorado, Connecticut, Florida, Hawaii, Illinois, Maryland, Minnesota, Nevada, New York, Ohio, Oregon, Pennsylvania, Vermont, and Washington, along with the District of Columbia, are among those jurisdictions that have modified the rule. The changes include adding official commentary and issuing binding ethics opinions, or announcing a policy to permit counseling and assistance of a client with activities permitted by state marijuana laws. In those states without a modification or official guidance regarding enforcement of Rule 1.2(d), the majority view among state bar associations and regulatory committees is that the rule prohibits counseling conduct that violates the CSA.

Similarly, lawyers wanting to invest in a cannabis business should beware. The prevailing view is that a lawyer’s financial participation violates ABA Model Rule 8.4 (b), which states that it is professional misconduct for a lawyer to commit a criminal act.

Pot Now Pays—Lawyers, That Is

Despite those risks, the AmLaw’s top 200 firms are jumping into the fray and building cannabis practices given the growth of this industry sector. Although large U.S. institutions may not be able to invest in cannabis growing and distribution companies, individuals and foreign investors often can.

Thus, law firm Thompson Coburn has helped companies through Illinois’s initial application process to obtain medical marijuana dispensary and cultivation licenses and to navigate the varying laws of other states.

Dorsey & Whitney has approximately 25 lawyers working on cannabis-related matters full-time, including general corporate work for U.S.-based cannabis companies, investments from abroad, and other work for Canadian and non-U.S. companies. Similarly, Fox Rothschild launched its cannabis practice within the last few years and has grown to about 20 lawyers working for cannabis clients full-time.

Duane Morris has almost 50 attorneys working on cannabis matters in some capacity, covering matters that range from real estate to intellectual property and corporate structure, and is partnering with the American Trade Association of Cannabis and Hemp (ATACH). In doing so, it is the first time the national cannabis trade organization has teamed up with an AmLaw 100 firm.

So, does pot pay? The ex-Polsinelli law partners who started PharmCann, LLC, one of the country’s earliest cultivators and dispensers of medical marijuana, a few years ago, probably think so. In October 2018, the business was sold to MedMen Enterprises Inc. for $682 million—a record high in the legal cannabis business.

Not long ago, large firms were hesitant to get involved with the cannabis industry. With the projected growth trajectory of the industry sector in this country, it is no surprise that national firms are going green, too.

Daniel S. Wittenberg is an associate editor for Litigation News.

Resources

• Tom Angell, “Jeff Sessions Slams Marijuana Legalization (Again),” Forbes (Sep. 20, 2017).
• Vivien Azer, Brian Nicholas Velez, and Gerald Pascarelli, “Cannabis: $75B Opportunity; Category Cross-Currents Keep Us Cautious On Booze,” Cowen (Apr. 11, 2018).
• Zoe Chevalier, “Recreational Marijuana: A Business Boon for States?,” U.S. News (Aug. 1, 2018).
• Chris Fournier, “Marijuana will add $8 billion to Canada’s Economy – at least on paper, TD says” Financial Post (Sep. 19, 2018).
• Craig Giammona, “Marijuana Legalization, A Budding Industry,” Bloomberg (Jul. 23, 2018).
• Stephanie Russel-Kraft, “More Law Firms Rolling With Cannabis Ventures,” Bloomberg Law (Aug. 9, 2018).
• Alva C. Mather, “Taking the Leap and Starting a Cannabis Practice,” Law Practice Today (Nov. 14, 2017).
• “As Legal Marijuana Spreads, Am Law 100 Firm Links With Cannabis Trade Group,” Yahoo! Finance (Oct. 18, 2018).

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