In the cannabis industry, attorney competence is key

As the legal market grows, so too will the need for lawyers

Entrepreneurs, executives and investors strategize with lawyers with the goal of finding concrete answers and practical business solutions to complex problems. Those in the cannabis industry are no exception. As the global cannabis industry continues to mature, the need for attorneys will only increase.

From defending individuals against criminal charges to creating systemic change by rewriting the law, lawyers have played a central role in the cannabis legalization movement. Attorneys have been participating — hand-in-hand with their clients — in both a grand experiment being carried out amongst the states, as well as a civil disobedience movement born of necessity for hundreds of millions of Americans directly impacted by the War on Drugs.

Much like their cannabis industry clients, early attorney-activists in the cannabis space had to be scrappy and creative. Ten years ago, for instance, it was common for cannabis business owners to seek advice about transactional legal work from their personal criminal defense attorney.

These days, the formation of state-regulated cannabis markets has theoretically provided cannabis businesses with equal opportunity to access the same rights and protections enjoyed by nearly all other American industries. In practice, this is untrue. The ambiguity between the legal rights a cannabis business might assert (such as contract rights) and the legal protections a cannabis business definitely possesses (nearly none) stem from the ongoing conflict between federal and state law. Every cannabis business feels this tension to a varying degree.

Many states with nascent markets have yet to grapple with the deeper, complex issue of whether attorneys may lawfully provide services to cannabis businesses without jeopardizing their own licenses to practice law. As a result, many attorneys are simply unwilling to provide legal services to cannabis business clients.

For attorneys who are willing to service cannabis clients, there are many issues including: whether the traditional client protections of attorney-client confidentiality and attorney-client privilege may be asserted on behalf of their client or themselves when facing state or federal inquisition; whether the attorney may lawfully accept a fee for their services; whether the attorney may take equity in a client’s cannabis business, thus becoming an “owner”; whether they may make a claim to their malpractice insurance in the case of a dispute with the client; and whether they may hold a cannabis client’s funds in trust and, if so, what amount? Despite these open questions, cannabis businesses require extensive legal services in order to maintain compliance and position themselves for sustainable growth.

Executives seeking legal representation should focus primarily on their attorney’s familiarity with the industry’s challenges and competence in navigating the conflict of federal, state and municipal law. To adequately gauge an attorney’s competency, it is essential for cannabis entrepreneurs to be intimately acquainted with the regulations governing their operations. Executives must also be critical of their attorney’s confidence level in any legal conclusion or strategy. Cannabis businesses cannot afford to blindly trust the advice of their lawyer; instead, they must work alongside their legal representative to evaluate the convoluted maze of regulations.

Established business strategies for most businesses, such as incorporating in Delaware or Nevada, may actually jeopardize a cannabis company’s ability to operate lawfully by exposing it to liability for operating in multiple states or across state lines. Traditional legal advice regarding branding dictates that businesses seek only a federal trademark from the U.S. Patent and Trademark Office, but for a cannabis business, its strongest intellectual property rights may arise from a state-issued trademark or common law. Though it may be comforting for an executive to hear from a prospective attorney things like “I’ve incorporated hundreds of companies,” “the firm will accept payment in the form of an option in your cannabis business,” and “we file trademark applications every day,” a savvy executive knows that each cannabis business faces unique challenges associated with the transition away from an exclusively underground market and into an open, legitimate industry.

Cannabis executives seeking legal services should be prepared to hear from their attorney that the answer to their business’ need may be unclear, tentative or subject to change at any moment in the current political climate. Entrepreneurs, executives and investors should steer clear of any attorney who is only “dabbling” in cannabis law, who is comfortable employing “traditional” legal methods and advice to achieve the business’ goals, or who is extremely confident that strategies that proved successful in their practice of law for clients in other industries will easily translate into successes for your cannabis business.

Cautious optimism should be as concrete of a legal conclusion as your cannabis industry attorney is willing to provide.

 

Hannah Stitt is an attorney with the San Francisco-based law firm Ad Astra Law Group, LLP and a member of the Ethics Committee for the National Cannabis Bar Association. She represents individuals and companies in both civil litigation and corporate transactions. She can be reached at hstitt@astralegal.com. This article has been prepared for general information purposes only. The information presented is not legal advice and is subject to change.

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