States are still in disarray as to what is legal, what is not legal, and what might become legal. This creates great difficulty for attorneys, especially those who practice across state lines or have multi-state clients. So, whether you are for or against the legalization of marijuana, cannabis, and related products – it may still affect you, your firm, and your practice. Of course, many ethical issues arise as well when dealing with this subject matter, so you need to be up to date on what your state bar has decided is allowed. For instance, in Washington state, an attorney may purchase, consume, or have an ownership interest in a cannabis business. This is not true in all states, especially neighboring Idaho, where marijuana is completely illegal, and people can still be stopped and arrested for even CBD products going through the state. You don’t want to be an attorney who is caught in possession of marijuana in Idaho. Indian tribes are the same way! Although they are on federal land, some tribes have compacts with states as they are “sovereign nations” presumably allowing them to grow or sell retail marijuana to consumers. Other tribes still follow the strict federal laws to the letter of the law and have determined that marijuana is completely illegal on their reservation and that you may be terminated if you work for a tribe and test positive for marijuana, even if the state where you live says it’s legal.
May 11, 2022 Did You Know?
Marijuana, Cannabis—Don’t Quit Reading Now! Why This Area of Law Will Likely Affect Your Practice
By Lisa J. Dickinson
For firms who are considering making practice groups in this area, how do you proceed? For instance, if laws have passed to allow medical or retail sales, but the state bar has not explicitly updated its ethical rules to allow practice in this area, can you assist a client in applying for a marijuana license? How do you advise an ancillary business, such as an insurer, landlord, materials supplier, bank, or credit union on how to deal with these businesses? Can you help them form an LLC or corporation? The answer is “it depends.” It depends on your state ethical rules and, frankly, your own firm’s comfort level in dealing with what remains the potential stigma of practicing marijuana law. Some of your firm’s other clients may find this distasteful. These are all considerations that must be made before determining whether to form a practice group or allow your firm attorneys to practice in this area. Many excellent attorneys who do practice in this area do not necessarily advertise that they do so. For instance, I have practiced business law and litigation pertaining to this subject matter since it became legal in Washington to do so but until recently have not even listed this practice area on my firm’s website, LinkedIn, or other marketing channels. Some of your other clients may find it repugnant or offensive that you practice marijuana law.
Even while there is a trend in the legalization of marijuana products and derivatives, there is still a general stigma against attorneys practicing in this area – that they are not as competent, not ethical, or just downright dazed and confused. That said, there are certainly some newer, untrained attorneys who claim to practice in this area but can do little more than assist in applying for licensing and advise on the new marijuana laws in the state but are not well trained on other subjects such as contracts, insurance, entity formation, lease review, employee issues, partnership disputes, and financing, just to name a few. The experience I have had working in this arena is that there are excellent attorneys who choose to practice “marijuana law” whether they advertise as such or not. You may need an excellent mergers and acquisitions attorney, a securities attorney for accredited investor offerings, a general business attorney to give entity and employment law advice, and a business litigator for partner disputes or other business disputes. Even though marijuana companies cannot apply for US trademarks at this time, there may come a time when it does become legal, so some attorneys have strategies as to how to best position a company if the law changes in this area. And some companies have had to defend litigation alleging that a marijuana company is violating someone else’s trademark. These issues take more than a newbie, self-trained, dazed-and-confused attorney.
General employment lawyers also may encounter these issues. Does your employment manual still authorize pre-employment drug testing? What if an employee has a legal medical marijuana card? Can you fire someone for using medical marijuana? What about drug testing after an accident at work? What if they are fired for using marijuana or have a “positive test,” but there is no evidence the employee was under the influence during working hours (a person can test positive after not having used it for a long time, unlike alcohol). Can the employee get unemployment compensation?
Others who practice in this area do work in the area of lobbying, regulatory matters, or perhaps even practice criminal law. There are still RICO cases, possession on federal lands, advocating for legislation and legalization, and many other aspects of the law that would be considered dealing with “marijuana law.” Tax attorneys or government attorneys working for the IRS also touch on these issues under 280 E and other federal and state regulations. A general business practitioner needs to at least be aware of the taxation issues faced by marijuana businesses. These are just a few examples of how broad this practice area is and how it is not a small sliver of the law or a trend that will disappear. It is more probable than not that you will encounter a case touching on marijuana, cannabis, CBD, Delta-8, hemp, or paraphernalia, even if you practice another area of law.
Even if you are strictly a litigator or represent an insurer, you may need to know certain things about cannabis businesses. What if you want to sue one – can they file bankruptcy on your client? (No, but they can potentially file a receivership.) How can you collect on a judgment – is the company banked? Can you lien their assets if you are a lender? Is it better to file in state or federal court if you do not have an arbitration clause? What laws apply if you are an ancillary business doing business with a cannabis company, but cannabis is illegal in your state – does that make the contract unenforceable for illegality? Federal courts cannot enforce “illegal” contracts. For instance, does your circuit hold that a cannabis business contracting with a payment processing company in another state is unenforceable for illegality? There are examples of insurance cases where the court held it could not require an insurer to pay for the future use of medical marijuana expenses because doing so would violate the Controlled Substances Act. Another case held that an insurance company could not be required to pay for the replacement of marijuana plants.
What do you do if you are a landlord and drafting a lease for a marijuana company to do business out of your building? Are there things you should know? (Yes.) Is CBD legal or not? What is Delta-8 or 9? Is either one legal?
For a general practitioner who does not practice in this area, but it has now become legal (or will soon become legal in some manner) in your state, you should rely on those who have experience and knowledge in this business. I can say that there are some very fine TIPS lawyers and litigators in our newest general committee, the Cannabis Law and Policy Committee (CLPC) who you may contact and they would be happy to discuss these issues with you. Some new members of CLPC are also new to TIPS, so I encourage you to reach out and learn from them and share ideas on how your firm can also benefit from knowledge concerning this topic. Please also plan to attend the Business Litigation Committee’s Standalone CLE in Atlanta in March where the CLPC will have a session. We will be there, and at the Spring Conference in Baltimore, to answer any questions that you may have!