United States: The Legal Ethics Of Advising The Cannabis Client

As the federal government continues to treat marijuana as a Schedule 1 controlled substance, attorneys across the nation face ethical concerns in providing professional services to cannabis-related businesses in the 29 states where marijuana has been legalized in some form.

Federal law makes it a crime for any person to knowingly or intentionally manufacture, distribute or dispense a controlled substance. (Controlled Substances Act, 21 U.S.C. § 831(a).). Federal law also makes illegal certain financial transactions connected to unlawful activity, including transferring monetary instruments or funds with the intent to promote the carrying on of specified unlawful activity, including the manufacture, importation, sale or distribution of a controlled substance. (Money Laundering Control Act of 1986, 18 U.S.C. §§ 1956, 1957.) Nevertheless, since 1996, more than half the states, the District of Columbia, Guam and Puerto Rico now allow comprehensive public medical marijuana and/or recreational marijuana programs, and marijuana has become the fastest-growing industry in the United States.

With this confusing mix of federal prohibition and state legalization in the absence of federal enforcement, providing legal services to cannabis industry−related clients has become a source of ethical concern for lawyers. There are two main categories of potential clients: (1) businesses that directly manufacture, distribute or sell marijuana in compliance with state law ("plant-touching" clients) and (2) third parties who help these businesses operate or refer customers to them, including doctors, bankers, investors, lawyers, landlords, real estate brokers, accountants and ancillary service providers ("ancillary" clients).

Providing legal services to both plant-touching and ancillary clients has become permissible under many state laws and ethical opinions, but could still be considered a violation of federal law. Most states do not prohibit attorneys from advising clients on the content and interpretation of state marijuana laws, but others restrict the scope of such legal assistance through ethical rules.

Many state bar associations have addressed this issue through Rule 1.2(d) of the Model Rules of Professional Conduct, which holds:

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.

A number of states have specifically amended Rule 1.2(d) to permit attorney representation of clients with respect to the specific state marijuana laws so long as the lawyer also advises the client about related federal law and policy. However, none of these regulatory bodies have explicitly identified the scope of the advice the lawyer must give about federal law and policy. For example, Colorado, Connecticut, Ohio, Oregon, Nevada, Illinois and Washington all have amended their rules of professional conduct to permit attorneys to advise and assist their clients on cannabis business law issues, including state and local licensure.

The Colorado Bar Association promulgated Comment 14 to Rule 1.2, specifically allowing attorneys to "counsel a client regarding the validity, scope, and meaning of Colorado constitution article XVIII, §§ 14 & 16" (governing the personal use and regulation of marijuana), and to assist such clients "in conduct that the lawyer reasonably believes is permitted by these constitutional provisions and the statutes, regulations, orders, and other state or local provisions implementing them." However, the lawyer "shall also advise the client regarding related federal law and policy."

Similarly, the Washington State Bar Association added Comment 18 to its Rule 1.2(d) permitting attorneys to "counsel a client regarding the validity, scope and meaning of Washington Initiative 502 (Laws of 2013, ch. 3) (governing the legalization of marijuana), and to assist a client in conduct that the lawyer reasonably believes is permitted by this statute and the other statutes, regulations, orders, and other state and local provisions implementing them."

Although the Ohio Bar Association issued an ethics advisory opinion suggesting that attorneys could not advise medical marijuana businesses and patients under the state's professional conduct standards due to its illegal status under federal law, the Ohio Supreme Court responded to the advisory opinion by adding a new subparagraph to its Rule 1.2, stating:
"A lawyer may counsel or assist a client regarding conduct expressly permitted under Substitute H.B. 523 of the 131st General Assembly [Ohio's medical marijuana law] authorizing the use of marijuana for medical purposes and any state statutes, rules, orders or other provisions implementing the act. In these circumstances, the lawyer shall advise the client regarding federal law."

The Oregon Rules of Professional Conduct Rule 1.2(d) states:

A lawyer may counsel and assist a client regarding Oregon's marijuana-related laws. In the event Oregon law conflicts with federal or tribal law, the lawyer shall also advise the client regarding related federal and tribal law and policy.

The Connecticut Bar Association Professional Ethics Committee issued an opinion in 2013 regarding the state's medical marijuana law prohibiting lawyers from counseling a client to engage in, or assisting a client to engage in, conduct that the lawyers know is criminal or fraudulent, while permitting lawyers to discuss the legal consequences of any proposed course of conduct with a client. However, the Connecticut Supreme Court subsequently amended Rule 1.2 to allow attorneys to provide such services. Specifically, the Comments were amended to reflect:

Subsection (d) (3) is intended to permit counsel to provide legal services to clients without being subject to discipline under these Rules notwithstanding that the services concern conduct prohibited under federal or other law but expressly permitted under Connecticut law, e.g., conduct under An Act Concerning the Palliative Use of Marijuana, Public Act 12-55, effective Oct. 1, 2012.

Under the Illinois Rules of Professional Conduct, Rule 1.2(d)(3):

A lawyer may ... counsel or assist a client in conduct expressly permitted by Illinois law that may violate or conflict with federal or other law, so long as the lawyer advises the client about that federal or other law and its potential consequences.

In several states where no formal amendment to the ethical rules has occurred, bar associations have issued opinions and guidance to attorneys with respect to the provision of legal services to cannabis-related entities. For example, according to an ethics opinion by the San Francisco Bar Association, representation of such entities is ethical if the lawyer:

  • Properly apprises herself and her clients of the risks associated with the cannabis industry, including the possibility of federal prosecution
  • Advises clients to adhere to state regulation
  • Discourages conduct and behavior that would invite federal prosecution.

In other words, counseling a client on compliance with state law does not equate to counseling a client to violate federal law.

The Massachusetts Board of Bar Overseers issued an announcement that it will not prosecute a member of the Massachusetts bar solely for advising a client regarding the validity, scope, and meaning of Massachusetts statutes and laws regarding medical or other legal forms of marijuana so long as "the lawyer also advises the client regarding related federal law and policy."

Additionally, in New York, the State Bar issued an Ethics Opinion that concluded that Rule 1.2(d) "does not forbid lawyers from providing the necessary advice and assistance..." to marijuana business owners because of the non-enforcement of federal policy.

Maine's Professional Ethics Commission issued an opinion in 2010 that stated "while attorneys may counsel or assist a client in making good faith efforts to determine the validity, scope, meaning or application of the law, the Rule forbids attorneys from counseling a client to engage in the business or to assist a client in doing so." The Commission subsequently changed course and recommended amending Rule 1.2 to allow attorneys to assist clients, however that effort failed. The Commission then issued further guidance in March 2017 establishing that:

Notwithstanding current federal laws regarding use and sale of marijuana, Rule 1.2 is not a bar to assisting clients to engage in conduct that the attorney reasonably believes is permitted by Maine laws regarding medical and recreational marijuana, including the statutes, regulations, Orders and other state or local provisions implementing them. The Commission cautions that, because the DOJ guidance on prosecutorial discretion is subject to change, lawyers providing advice in this field should be up to date on federal enforcement policy, as well as any modifications of federal and state law and regulations, and advise their clients of the same.

Conversely, the New Mexico State Bar Association, citing federal drug laws, has cautioned attorneys representing cannabis-related entities. The opinion recognized that:

At one end of the spectrum, the committee is in general agreement that negotiating contracts for the purchase of cannabis would be directly assisting the client to engage in a criminal activity. At the other end of the spectrum, some committee members opined that forming a general alternative medical business, which could possibly include the prescribing and distributing of medical cannabis, would not be such assistance.

As reflected above, various state bar associations, rules committees and ethics commissions continue to grapple with reconciling the federal treatment of marijuana and state laws legalizing and regulating its use. The overall consensus, however, is that as a matter of public policy, attorneys can and should be allowed to provide cannabis-related entities with legal services as permitted in their respective states.

Attorneys must nevertheless be aware of and mitigate potential risks inherent in representing cannabis-related clients. Most attorney malpractice policies exclude coverage for criminal acts. If a lawyer therefore fails to properly advise a marijuana business of federal marijuana laws and policy, and that client faces damages and sues for malpractice, the insurance carrier may deny coverage based on the criminal acts exclusion. In regard to fees, because funds derived from marijuana businesses may be subject to forfeiture under federal law as an illegal source, a lawyer may be at risk of forfeiting fees collected from a marijuana business client. Furthermore, lawyers should be aware of the potential for money laundering criminal exposure when accepting payment of more than $10,000 under 18 U.S.C. §§ 981(a)(1)(A), 1957. It should be pointed out that we are aware of no attorney that has been prosecuted under federal statutes for advising a state legal cannabis business in the absence of other charges of illegal conduct.

Takeaway

The risk-averse legal profession is rapidly embracing this new industry. Indeed, numerous courts, bar associations and state officials encourage this representation. They recognize that it is an important matter of public policy and safety that lawyers have the ability to advise cannabis businesses on how to comply with their obligations under state law. Without effective legal counsel, it will be impossible for the cannabis industry to make a responsible transition to the white market. This representation must nevertheless be undertaken with professionalism and competence and a clear understanding by the attorney as to the ethical obligations in advising the cannabis client.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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