This two-part blog will highlight significant issues attorneys and their clients face as a result of the emergence of legalized marijuana. In this Part I, we’ll consider the challenges posed to banks and other businesses, as well as the ethical obstacles confronting lawyers. In Part II, we’ll look at employment law issues related to marijuana’s legalization.There is a clear disconnect between state and federal legal treatment of marijuana. Consider: 23 states plus the District of Columbia have now legalized medicinal or recreational marijuana, or both. At the same time, the federal Controlled Substances Act still categorizes marijuana as a Schedule 1 drug, which means selling less than 50 kilograms of marijuana is punishable by up to 5 years in prison and a $250,000 fine. So how should businesses and banks operate in a world in which marijuana is both legal and illegal? Many questions have arisen surrounding states’ regulation of marijuana and whether, and to what extent, the federal government will intervene. In a 2014 federal spending bill, Congress included a provision prohibiting federal drug agents from raiding state legalized marijuana retail operations. This legislation offers assurance that, at least for now, the federal government will not enforce federal laws against marijuana in states where the drug is legal.
Banking Issues. Despite the federal government’s hands-off approach, banks remain hesitant about doing business with marijuana-related companies. Subject to the Controlled Substances Act, if a bank accepts a marijuana business’s proceeds and deposits it into a checking account, or gives the business a loan to fund its operations, the bank is conspiring to distribute marijuana in violation of federal law. In addition, banks are worried about jeopardizing their FDIC deposit insurance. Furthermore, the FDIC has advised that banks should assure themselves that they are not facilitating marijuana banking. Thus, banks have generally avoided dealing with marijuana businesses both to protect their reputations and insurance, and to avoid the imposition of fines or potential closure by federal regulators.
Business Issues. Make no mistake: pot is big business. The marijuana industry is huge and growing. In 2014, legal marijuana was a $700 million industry in Colorado alone and has been identified as the fastest growing industry in the U.S. Entrepreneurs are seizing this opportunity to get in on the ground floor of the legal marijuana movement. Like any other business, the enterprise needs attorneys to help keep sellers and growers in compliance with the law. Marijuana packaging manufacturers need legal advice on labeling regulations. Marijuana investors need counsel on banking restrictions and related perils of dealing with a cash-based business. In many ways, marijuana law is no different from other legal practice areas in that it involves contracts, real estate transactions, banking, trademarks and regulatory compliance. As a result, marijuana divisions are popping up at law firms to advise dispensaries on where they can locate, what their websites can say, how to vet new clients, and how to lawfully transport and distribute their products.
Ethical Issues. There are two primary potential ethical pitfalls for attorneys regarding legal marijuana – professional and personal. While attorneys may be excited about the legal opportunities in such a growing and lucrative new industry, every state’s professional conduct rules contain a regulation akin to Rule 1.2(d) of the Model Rules of Professional Conduct, which prohibits a lawyer from assisting or participating in criminal conduct. Given the uncertainty surrounding marijuana’s legal status, the bar associations in some jurisdictions are offering guidance to lawyers whose practices deal with marijuana. For instance, the Arizona state bar association has stipulated that a lawyer must reach a reasonable conclusion that his client’s proposed activities comply with state law. The lawyer must also advise his client about federal law implications and, when and where applicable, advise them of conflicting federal law.
As guidance continues to emerge from state bar associations on how attorneys can ethically counsel clients regarding marijuana transactions, other states are beginning to set forth guidance related to a lawyer’s personal use of marijuana. North Dakota, for instance, has instructed that it is unethical for a North Dakota lawyer who resides in Minnesota (where medical marijuana is legal) to get a prescription in Minnesota and use or consume marijuana pursuant to such prescription. States are continuing to issue guidance on these and other issues, so attorneys involved with marijuana, either personally or professionally, must remain aware of any such guidance in their relevant jurisdictions.
In Part II, we’ll cover some of the employment law implications of legalized marijuana.
Do you provide counsel to clients in the marijuana business? Please share your experience, concerns and best practices in our comments section.
